Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — ENVIRONMENT

Wildlife and Countryside Act 1981

Mr. Hicks: asked the Secretary of State for the Environment whether he now has any proposals to amend the Wildlife and Countryside Act 1981; and if he will make a statement.

The Parliamentary Under-Secretary of State for the Environment (Mr. William Waldegrave): The Government are indeed considering suggestions —including the amendment Bill brought forward by the hon. Member for Wentworth (Mr. Hardy)— for improving some aspects of the Act.

Mr. Hicks: In view of the unanimity demonstrated by all interested parties that some loopholes and abuses in existing legislation should be closed, including that which relates to the three months consultation period, will my hon. Friend assure the House that the Government will introduce legislation this autumn?

Mr. Waldegrave: I am not sure whether I can give an assurance in quite the terms requested by my hon. Friend. We are considering suggestions sympathetically.

Mr. Hardy: Does the Minister agree that support for the amendment Bill, which the Government blocked last Friday, is informed and broad-ranging? If the Minister cannot give an assurance that a Bill will be introduced in the autumn, will he undertake to introduce a Bill as urgently as possible, and certainly before late 1985?

Mr. Waldegrave: I have had useful discussions with the hon. Member about the technical difficulties involved in drafting the Bill. We are considering the hon. Gentleman's suggestions sympathetically.

Mr. Kenneth Carlisle: Does my hon. Friend accept that the level of compensation under management agreements is not sustainable? When he reviews the financial guidelines, will he consider eliminating all elements of subsidy in compensation, because subsidy is not the creation of wealth, merely its transfer?

Mr. Waldegrave: I have already said that we shall in due course review the financial guidelines. My hon. Friend's suggestion, with others, will be considered.

Mr. Simon Hughes: Will the Under-Secretary confirm that among the deficiencies which the Government intend

to remedy is, first, that the Act deals only with parts of the countryside and not the whole countryside; secondly, that it has driven away some voluntary conservation acts in the countryside, and, thirdly, that it does not protect sites of special scientific interest? Does he accept that the report in The Observer last Sunday is correct? Will he invite Opposition parties other than the Labour party to join his discussions before the matter is finally dealt with in Government legislation?

Mr. Waldegrave: The discussions to which I referred were with the hon. Member for Wentworth (Ms. Hardy) and were to do with his amendment Bill, which deals particularly with SSSIs. I should be delighted to talk to the hon. Gentleman about these matters.

Sir Hector Monro: Does my hon. Friend agree that although this small but important amendment is essential, the majority of SSSIs are in good hands, looked after lovingly by their owners and are in no danger?

Mr. Waldegrave: I agree that a large part of the threatened habitat is in good hands and being looked after, but some worrying features of damage remain. That is what we are considering.

Mr. Dalyell: What has the Minister learnt from Halvergate?

Mr. Waldegrave: I have learnt not to give assurances to the hon. Member for Linlithgow (Mr. Dalyell) without much more care. I hope that I shall not make that mistake again. We have all learnt that we must have a new and more integrated regime on the Norfolk Broads, so that we do not continue having absurd arguments.

Mr. Baldry: When my hon. Friend considers the workings of the Wildlife and Countryside Act 1981, will he consider how greater access to the countryside can be secured for the many people who want to use it for recreation, in a way that is compatible with the rights and interests of agriculture?

Mr. Waldegrave: We await with interest the report of the Common Lands Forum—the hon. Member for South Shields (Dr. Clark) knows all about that, because he is vice president of a society that forms part of it — and we shall want to re-examine these areas next year when we have seen the report. The footpath network remains the backbone of access to the countryside and it must be protected.

Dr. Cunningham: Will the Minister recognise the urgency of the problem? Has he seen the report of Friends of The Earth, which points out that during the past three years 133 sites of special scientific interest have been either damaged or completely destroyed, and that most of the damage results from intensive agricultural activities? In the past weeks we have seen many examples, such as the Halvergate marshes, which show that the damage is gathering momentum. Will he recognise the urgency of the matter? Does he agree that that shows that the Act is not working as everyone hoped it would, and that we must press on with the Wildlife and Countryside (Amendment) Bill, about which my right hon. and hon. Friends and others have been talking to him?

Mr. Waldegrave: I saw the figure to which die hon. Gentleman referred, which is why I was hesitant in


agreeing entirely that the position was fairly satisfactory. For those reasons we are seeking to strengthen the Act further, if we can do so properly.

Atmospheric Pollution

Mr. Chope: asked the Secretary of State for the Environment whether he is satisfied that the outcome of the recent European discussions on atmospheric pollution and acid rain.

Mr. Forman: asked the Secretary of State for the Environment if he will make a statement in the light of the recent conference of Environmental Ministers in Munich.

Mr. Waldegrave: Both the Munich air pollution conference and the Environment Council in Luxembourg revealed a common will by European Governments to make further progress on air pollution control. That is a very satisfactory outcome.

Mr. Chope: Does my hon. Friend agree that insufficient emphasis was placed on the impact of nitrogen emissions as a major contribution to atmospheric pollution, especially as Britain has kept its level of nitrogen emissions constant, while some European countries have increased their levels by 50 per cent.?

Mr. Waldegrave: My hon. Friend is right, in that in approaching the acidification problem it is no good considering only sulphate. We must also include nitrogen emissions. Although the figures are not completely reliable, it is true that there does not appear to have been an increase in nitrogen emissions from this country for the past 10 years. For the reasons that my hon. Friend gave, the Government have given a broad welcome to the European Commission's approach on vehicle exhaust controls, which would meet a large part of the problem.

Mr. Forman: Although there is an argument for hastening slowly in this important area so as not to spend public money unnecessarily, what swift and cost-effective measures has my hon. Friend's Department in mind, and will take, when there is scientific consensus on this important matter?

Mr. Waldegrave: The most important efforts must go into designing combustion processes for motor cars in terms of the lean burn engine, and into the pressurised fluidised-bed and other combustion methods for power stations, which will deal with the problem at source. That way we shall not have to try to sweep up the damage afterwards.

Mr. Campbell-Savours: Do "European discussions" also include the most recent meeting of the Paris commission and its recommendation on the implementation of ALATA in relation to nuclear discharges? Is the Minister aware that within Cumbria some people remain worried because BNFL intends to take 10 years to implement that recommendation and the commission wants a far earlier implementation of it? Will he seek to require that?

Mr. Waldegrave: That is far outside the scope of the conferences on air pollution. The fact that the British Government were able to sign the recent Paris commission declaration, should be, and I think, is, welcomed by the hon. Gentleman and his constituents.

Mr. Roger King: Will my hon. Friend assure me that he will not be panicked by the implementation of

controversial catalyst systems as are now required in Germany into introducing measures to clean up car exhaust emissions? Will he try to ensure that there is firm evidence that the motor car is the prime source of pollutants in acid rain?

Mr. Waldegrave: The catalytic convertor seems to be a bad solution. The properly designed lean burn engine is a much better solution.

Dr. David Clark: Does the Minister appreciate the damage being done to Britain by our failure to sign the Ottawa — now presumably the Munich — declaration, which calls for a 30 per cent. reduction in air emissions by 1993? Why will the Government not sign that document, in view of their repeated declarations that there have been reductions in SO2, and why cannot Britain join its EC colleagues, the Scandinavian countries, the Soviet Union and even Bulgaria in trying to clear our atmosphere?

Mr. Waldegrave: I must disillusion the hon. Gentleman about the Soviet Union, which has not signed the agreement. It said that it would strive to reduce trans-boundary fluxes by 30 per cent., which is a very different matter. For the additional 10 per cent. of gain over what we have already gained since 1980, £600 million does not appear to us to be cost-effective.

Structure Plan Reviews

Mr. Hal Miller: asked the Secretary of State for the Environment what progress he is making with structure plan reviews; and if he will make a statement.

The Parliamentary Under-Secretary of State for the Environment (Mr. Neil Macfarlane): It is for county planning authorities to review their structure plans and to submit proposals for alteration when they consider it appropriate. A number of authorities have submitted alterations or replacement plans following review, and at present 10 such proposals are with my Department.

Mr. Miller: Does my hon. Friend understand the concern felt for the green belt by people in my constituency and county, which is mentioned in the review proposals of other authorities? Will he give us an early assurance about our green belt, preferably by approving our structure plan review?

Mr. Macfarlane: I am aware of the anxieties that my hon. Friend has expressed over several months, and I am considering the report of the panel, which conducted a public examination in March. There will thereafter be an opportunity for objections. In the recent green belt circular we reaffirmed the fact that the Government continue to attach the greatest importance to green belts, and the circular gives further advice on the establishment of long-term green belt boundaries in local plans. I hope to report to my hon. Friend as soon as possible.

Mr. Ashton: Is there anything in the structure plans concerning water authorities? Is the Minister aware that people in many parts of the country are receiving no water, but get no rebate on their water bills? Is that not monstrous, especially since the Government cancelled plans for a national water grid system?

Mr. Macfarlane: That has nothing to do with structure plans. Had the hon. Gentleman been in the House earlier


this week he would have heard my hon. Friend the Minister for Housing and Construction discussing that matter in answer to a private notice question.

Mr. Speaker: Mr. Michael McNair-Wilson.

Hon. Members: Hear, hear.

Mr. Michael McNair-Wilson: Do the reviews take place purely on a county-by-county basis, or against the backcloth of a regional master plan that is being updated?

Mr. Macfarlane: I echo the sentiments of all hon. Members by saying that we warmly welcome my hon. Friend back to these Benches. I am considering urgently several structure plans, and the master plan and structure plans are closely integrated. I am aware of my hon. Friend's anxieties about Berkshire, which he has discussed with me and with hon. Members for neighbouring constituencies.

Mr. Ashdown: When the Minister discusses such matters with county councils, will he bear in mind that many of them must radically review and change their structure plans? Is he aware, for instance—

Mr. Skinner: I was a councillor for 18 years. He has not even been a parish councillor.

Mr. Speaker: Order. The hon. Member for Bolsover (Mr. Skinner) must not interrupt from a sedentary position. If he rises and wishes to ask a question, he may be called, but he will not be called while he mutters from a sedentary position.

Mr. Ashdown: Is the Minister aware that the Somerset structure plan is based on a predicted job increase of 12,000 and that recent figures show that we are nowhere near that target? Indeed, there may be a net loss of jobs at this point in the plan period, which will require a radical restructuring of the entire plan.

Mr. Macfarlane: I wish that the hon. Gentleman, who speaks for the alliance on such matters, would understand what structure plans are about. He is completely wide of the mark, as usual.

Local Government Reform

Mr. Wareing: asked the Secretary of State for the Environment how many requests he has received to publish the responses to White Paper, Cmnd. 9063, "Streamlining the Cities"; and if he will make a statement.

Mr. Patrick. Jenkin: I have received a number of such requests, but I remain of the view that it is for those who sent in responses to the White Paper to decide whether to publish them.

Mr. Wareing: Is the Secretary of State aware that many of the organisations which responded made it clear that they wished their responses to be made available to Members of Parliament and to the public, including the Liverpool Council for Voluntary Studies, which wrote to him on 9 May, and the Merseyside Unemployment Centre, which wrote to him on 12 May? Should not the responses be fully published before his produces his White Paper in the autumn?

Mr. Jenkin: It would be without precedent for the Government to make available to the public or to hon. Members, other than by placing lists in the Library, the

detailed responses which have been sent in by a very large number of organisations. A great many organisations have made their responses available to hon. Members, and there is no reason why others which wish hon. Members to see what they have said should not do the same.

Mr. Heddle: While condemning the £6 million of ratepayers' money which Mr. Livingstone has squandered on a specious PR campaign, may I ask my right hon. Friend now to spell out loudly, clearly and continually the advantages in the demolition of an expensive and insensitive tier of bureaucracy?

Mr. Jenkin: The whole Government will spell out the advantages of the abolition of the upper tier authorities. I hope that my hon. Friend noted the speech that I made in Islington last Friday and the speech that the Secretary of State for Trade and Industry made in the City on the same day. We intend to sustain this campaign.

Mr. Litherland: Is the Minister aware that a great number of disabled people at present employed by the GLC and the metropolitan county councils fear for their jobs? Is he further aware that they place no credence on the Minister's statement that he will leave the matter to the bodies that take over, because that does not give them a guarantee of employment, but merely represents a further abrogation by the Government of their responsibilities?

Mr. Jenkin: I hope that all those who are concerned about the future of their jobs—including the disabled, for whom we have much sympathy —. with these authorities will bring pressure to bear on their employers and trade unions to lift their futile embargo on discussions about the future of this policy. We are making arrangements in the paving Bill for a staff commission, but such a commission can be effective only if the trade unions are prepared to talk to it and to co-operate. At the moment there is no sign of that co-operation.

Mr. Dykes: Will my right hon. Friend give a little more information about the nature of the parliamentary document that he intends to submit in the coming weeks to deal with this issue? How does he react to the latest suggestion of Alan Greengross and his colleagues at County hall?

Mr. Jenkin: My right hon. Friencls and I have discussed Mr. Greengross's proposals. We have had to make it clear that the Government's policy does not envisage the kind of arrangements that Mr. Greengross is putting forward. The document, which I hope to publish before the House rises, will consist essentially of summary description of the destination of the various functions of the GLC and the metropolitan councils. It will be seen from that that the great majority of those functions will be devolved to the local democratic authorities, the borough councils in London and the district councils in the metropolitan areas.

Mr. Chris Smith: Did the White Paper "Streamlining the Cities" contain any proposals for placing restraints on the spending powers of the GLC or the metropolitan authorities? If not, does the right hon. Gentleman have any proposals for public consultation of any such proposals before he comes with them to this House or another place?

Mr. Jenkin: The threats that have been made by some of the upper tier authorities to engage in what I have heard described as a scorched earth policy have made it


necessary, to protect the interests of successor authorities and their ratepayers, for us to take steps to prevent the abuse of these powers. I must ask the hon. Gentleman to await the detailed amendments, which will be tabled later today in another place.

Sir Anthony Grant: Has my right hon. Friend received any requests, in connection with streamlining local government or anything else, that he should continue to treat Liverpool no differently from any other local authority? Is he aware that more public money and attention have been devoted to that area in recent years than to anywhere else, and that the only result has been ever more whining and whingeing from the Left-wing commissars there? Is he further aware that the rest of the country's ratepayers and taxpayers are fed up with it?

Mr. Jenkin: My hon. Friend will have taken comfort from what the Prime Minister told the House yesterday, which was that Liverpool remains subject to exactly the same rules as every other local authority in England. As my right hon. Friend said, there are no concessions to Liverpool on GREA, targets, block grant, penalties or disregards. The same rules apply to Liverpool as apply to all other authorities.

Mr. Alton: Does the Secretary of State accept that the signal that appears to have been sent to moderate Labour leaders and to moderate councils throughout the land is that the Government will give way to intimidation, blackmail, bludgeoning and threats of riots? Does he accept that every offer that he has made under the housing investment programme and the inner city partnership programme was on offer from the beginning, and that all that has happened is that ratepayers in Liverpool have lost about £2 million, the sum that has had to be borrowed from other services, as a result of the confrontation?

Mr. Jenkin: I hope that the leaders and councillors in other town and city halls will not be bamboozled by Councillor Hatton's rhetoric. The hon. Gentleman is absolutely right, for there has been nothing accorded to Liverpool that could not have been perfectly well discussed within the partnership arrangements and the inner city partnership programme, the arrangements of which are exactly the same as those that apply to the other six partnership authorities. I accept that Liverpool has serious inner city problems, and the urban policy is there to help with those problems. I can give the hon. Gentleman the assurance that nothing has been agreed with Liverpool, despite all the rhetoric that is coming from the Liverpool city hall, which could not have been negotiated in the ordinary course of events.

Mr. Allan Roberts: The Minister was to abolish elections in the metropolitan counties and in London to prevent Kever Coombes and Ken Livingstone from having an extra year in office. He is now to abolish elections to enable them to have an extra year in office. Which course does he think is the less democratic?

Mr. Jenkin: The hon. Gentleman is wrong on both counts. The elections are being abolished because it is without precedent to hold elections for councils that have less than a year to run.

Mr. Favell: Can my right hon. Friend estimate how many county council employees are engaged on propaganda programmes, and can he say what they should really be doing with their time?

Mr. Jenkin: This is a classic example of where many authorities — the GLC and the Greater Manchester council are perhaps the worst examples—appear to have no functions left except to campaign expensively for their own useless survival. I think that in so doing they are making the case for their abolition.

Dr. Cunningham: How can the Secretary of State make claims about better administration and the saving of money by abolishing the GLC and the metropolitan counties when he refuses to publish the evidence or any financial analysis? May I remind him that his own reorganisation of the NHS has resulted in an increase in administrators of 2,300, as a consequence of which administrators now form a higher percentage of those employed in the Health Service than previously? That is an unenviable record.
Does the right hon. Gentleman recall the article in The Sunday Times which suggested that he and the Prime Minister were going to introduce harsher penalties and disqualifications for elected councillors under an Act which is 100 years old and unique to Britain? Should not the surcharge be abolished?

Mr. Jenkin: I advise the hon. Gentleman to await the terms of the amendments to be tabled later today in another place. Although the first part of his question is essentially a matter for my right hon. Friend the Secretary of State for Social Services, the hon. Gentleman will find if he examines the figures closely—

Dr. Cunningham: They are in Hansard.

Mr. Jenkin: —that the administrative costs of the NHS as a proportion of total spending have fallen steadily in recent years.

Dr. Cunningham: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I shall take points of order afterwards. To do so now would take time from questions. Later—

Mr. Speaker: I shall now take the point of order.

Dr. Cunningham: On a point of order, Mr. Speaker. In answer to my supplementary question the Secretary of State seemed to say that the number of administrators employed in the Health Service had gone down—

Mr. Speaker: Order. We are in a difficulty here. This Question Time has dealt with environmental matters, which have nothing to do with the Health Service. Because of the limitation of time, I should not wish to go back to a matter that has nothing to do with this Question Time, but as the Secretary of State said this, I shall allow the hon. Gentleman to raise his point of order.

Dr. Cunningham: Thank you, Mr. Speaker. The argument was about reorganisation of services, and the Secretary of State implied that the reorganisation of the Health Service had resulted in fewer staff being employed. That is wrong, as an answer by the Prime Minister on 3 July showed.

Several Hon. Members: rose—

Mr. Speaker: Order. We cannot have any further extension of Question Time.

Mr. Dykes: Further to that point of order, Mr. Speaker. Cannot the House be protected from Opposition


spokesmen, from the Leader downwards, who seek to prolong the arguments of Question Time by making spurious points of order?

Mr. Speaker: Order. That could go for the whole House.

Lead-free Petrol

Dr. Mawhinney: asked the Secretary of State for the Environment if he will make a statement on the implications for environmental standards, such as lead levels in the air, of the timing of the introduction of lead-free petrol in the United Kingdom.

Mr. Waldegrave: Next year's 60 per cent. reduction in petrol-lead will enable us to meet the relevant European Community standard for air with ease. The introduction of lead-free petrol, by 1989 at the latest, will of course produce further improvements.

Dr. Mawhinney: The House is grateful to my hon. Friend for his lead in introducing lead-free petrol. Will he assure the House that if this country is able to introduce lead-free petrol before 1989 we shall do so and not wait for the rest of the European Community?

Mr. Waldegrave: Britain's approach was vindicated at the last Council of Minister's meeting. For the first time, all the countries of the European Community agreed to the introduction of lead-free petrol. I am grateful for what my hon. Friend said. The answer to the latter part of his question is yes, Sir.

Mr. Eastham: Does the Under-Secretary of State recall that about two years ago the Government decided to conduct an inquiry into lead pollution in certain urban areas, including Manchester? Is the Department now able to make a statement on the inquiry's conclusions and findings concerning damage caused to children?

Mr. Waldegrave: My constituency was included in the inquiry. National and European surveys show that there is no measureable impact on the health of children from the low levels of lead in this country, but that is not to say that it is not a sensible policy to diminish the risk of any such damage. That is what we are doing.

Local Government Act 1972

Mr. Amess: asked the Secretary of State for the Environment if he has yet reached a conclusion on whether he intends to take action with regard to section 142 of the Local Government Act 1972.

The Parliamentary Under-Secretary of State for the Environment (Sir George Young): My right hon. Friend has not yet reached a conclusion on this matter.

Mr. Amess: Is my hon. Friend aware that the continued misuse of section 142 of the Local Government Act is costing Basildon and GLC ratepayers thousands of pounds? Is he further aware that during the local district elections the Basildon district council launched a scurrilous propaganda campaign, which included a misquotation of the Minister for Housing and Construction and the misuse of a picture of Torvill and Dean? Is my hon. Friend aware that it is too expensive at the moment to pursue the matter through the courts?

Sir George Young: I hope that my hon. Friend's constituents will pursue with the district auditor, and

through the courts, that instance, which he has drawn to the attention of the House in an early-day motion. Of course, ratepayers have every right to object to having to pay for propaganda with partisan distortions with which they profoundly disagree. My right hon. Friend the Secretary of State for the Environment has this matter under active review.

Mr. Tony Banks: Will the Secretary of State explain to those Conservative Members sitting behind him that nothing improper has been done by the GLC or metropolitan county councils over the use of section 142? The money has been spent legally. If the numbskulls behind the hon. Gentleman do not understand that, they should start reading the Act. Is the hon. Gentleman aware —I ask him this question just to try to save him and the Secretary of State from making more mistakes—that under section 142 the GLC and other local authorities spend money on advertisements for jobs and on public notices? If the hon. Gentleman makes any changes, those displays will fall foul of them.

Sir George Young: The Local Government Act 1972 was drafted at a time when councillors of all parties observed a general convention that ratepayers' money was not to be used for blatant party political propaganda. Because that convention has broken down the Government have had another look at section 142.

Mr. Conway: When my hon. Friend is examining section 142 and, I hope, section 137 of the Local Government Act, will he take time to examine the use of urban programme funds, which are also misused for party political propaganda, and ensure that money is not given to groups which have political objectives, at the expense of ratepayers and taxpayers?

Sir George Young: Ministers will, of course, look at any particular instances of abuse of the urban programme that my hon. Friend draws to their attention. His supplementary question raises the point that it is not just section 142 that is at the heart of local authority abuse —there is section 137 and other sections as well. That is why the Government are having a broad review on this subject.

Mr. Skinner: Is the Minister aware that the district auditor would have some difficulty in trying to sustain an argument made by ratepayers about excessive spending on advertisements and so on by local authorities when other public corporations have been doing exactly the same? For example, the National Coal Board has spent more than £2 million already. When it was asked whether that was excessive payment, it said—

Mr. Speaker: Order. It is such a pity. The Minister cannot answer for the National Coal Board.

Mr. Skinner: rose—

Mr. Speaker: Order. I called the hon. Gentleman to give him an opportunity to ask a question. He must not waste his chance.

Mr. Skinner: What I am trying to explain is that on this matter—[HON. MEMBERS: "Question."]

Mr. Speaker: Order. I am waiting for the question.

Mr. Skinner: I am asking the Minister to consider, when drawing a comparison between public bodies such as local authorities, to take into account the fact that


another public corporation—the National Coal Board—has spent more than £2 million on putting out phoney propaganda—which will be paid for by the taxpayers—to try to defeat the strike. That matter must be taken into account.

Sir George Young: It is a pity that the hon. Gentleman could not see the picture of dismay on the faces of his hon. Friends behind him when he asked his question. Whatever section the NCB used, it was not section 142 of the Local Government Act. I note with interest that, despite the hon. Gentleman's eloquence, miners in Bolsover continue to work.

Mr. Meadowcroft: Is not the Minister's problem the fact that section 142 is permissive legislation? Is not the answer to the problem to support a freedom of information Bill which makes it obligatory to provide information, and which therefore has much less chance of being partisan?

Sir George Young: I am not sure that I follow the logic of the hon. Gentleman's intervention, but I can give him an assurance that we are scrutinising the legislation at the moment with a view to trying to bring to an end the abuse which I think the hon. Gentleman also condemns.

Mr. Peter Bruinvels: Does my hon. Friend agree that ratepayers are fed up with the gross abuse and party political propaganda displayed by Labour-controlled councils? Is he aware that in Leicester, for instance, up to £40,000 is being spent on a public relations exercise, at ratepayers' expense, to try to stop rate capping? Have we not had enough of this, and cannot we do something rapidly under section 142?

Sir George Young: My hon. Friend articulates a view that is held by many people. The problem is the mischief indulged in by an irresponsible minority, but I assure my hon. Friend that the particular abuses to which he referred are included in the review currently being undertaken within my Department.

Mr. Straw: As the Minister has a reputation as a liberal, will he resist the authoritarian wing of his party, which is so lacking in confidence in its own policies that it is seeking to crush the opposition and prevent the public from learning the truth about the Government's policies? Is it not time that the Government, instead of searching for the mote in the Labour party's eye, started to perceive the beam in their own eye? Is not the truth that the Government have outrageously abused the conventions relating to partisan political propaganda within the Ministry of Defence and the Prime Minister's press office, and that if section 142 applied to the Government every member of the Cabinet would by now have been surcharged and disqualified?

Sir George Young: Not so long ago the hon. Gentleman was a councillor in the London borough of Islington. If he was frank with himself, he would not tolerate for one moment the propaganda funded by that authority under these sections. Many other people on the Opposition Benches share that view.

Domestic Rating System

Mr. Knox: asked the Secretary of State for the Environment what representations he has received in the past year opposing the domestic rating system.

Mr. Patrick Jenkin: I have received many representations which seek the reform or abolition of the domestic rating system. However, after our extensive review, it is clear that there is as yet no generally acceptable alternative.

Mr. Knox: Is my right hon. Friend aware that rate capping and the abolition of the GLC and the metropolitan counties is no substitute for radical reform of the rating system? Will he go away and think again and bring in proposals for a fundamental reform of the rating system?

Mr. Jenkin: As my hon. Friend knows, in the past two or three years there has been the most thorough investigation of alternatives to rates undertaken by any Government since the war. Moreover, as he knows from a written answer, more than half the respondents to the Government's Green Paper on alternatives to rates favoured retention of the rating system. I am well aware that a wide spectrum of opinion would like an alternative, but, as the Select Committee concluded, there is no sign of any acceptable alternative at present. Of course, I never say "never" and a time may come when it will be possible to consider whether some reform would gain general public acceptance.

Mr. Cartwright: Does the Secretary of State accept that some domestic ratepayers are bearing more than their fair share of the burden because local authorities are forced to base rate bills on 1973 valuations? If he will not reform the system, will he at least ensure that it is based on up-to-date valuations?

Mr. Jenkin: The question of non-domestic revaluation is being considered urgently. That is a major task. As the hon. Gentleman knows, the valuation office would require a large number of extra staff to carry out the valuation and deal with the inevitable spate of appeals. I assure him, however, that the effective date for the non-domestic revaluation will be announced as soon as possible. On domestic revaluation, we intend to issue a consultation paper in due course and I hope that we shall not have to wait too long for that.

Mr. Squire: Is my right hon. Friend aware that those who have studied the problem have considerable sympathy with him in the difficulties that he faces, but that the central inequity of the present system under which two or more wage earners in the same household face the same rate burden as a household with just one wage-earner makes reform essential? Does he appreciate that he might be surprised at the favourable reception that proposals to tackle that central objection would receive?

Mr. Jenkin: I note my hon. Friend's reticence about what the proposals might be. Proposals were canvassed at length in the Green Paper and before the Select Committee. The Select Committee acknowledged that there might be a case for local income tax, for instance, but recommended that it should not be introduced unless there was widespread consent to such a change. I detect no such widespread consent.

Mr. O'Brien: Having assured the House that the domestic rating system is to be retained, will the Secretary of State consider section 21 of the Local Government Act 1974, which creates anomalies in the rating system, and will he give the problems of the domestic rating system equal status with those of the non-domestic system?

Mr. Jenkin: We are aware of the anomalies created by section 21. That will have to be taken into account when revaluation takes place. The fact that non-domestic and domestic revaluations take place at different times is already taken into account in the legislation, which provides for the necessary adjustments to be made.

Mr. Nicholas Baker: In view of the inadequacies of the present system, will my right hon. Friend ensure that neither he nor the Conservative party undertakes to reform the rating system unless it is absolutely clear which system is to be introduced?

Mr. Jenkin: My hon. Friend makes a very sound point. It is easy for hon. Members in all parts of the House to call for reform. It is a great deal more difficult to know what that reform should be.

Trafford

Mr. Tony Lloyd: asked the Secretary of State for the Environment how much grant the metropolitan borough of Trafford received from his Department in 1979–80; and how much it will receive in 1984–85 at 1984 prices.

Mr. Waldegrave: In 1979–80 Trafford received £32·8 million in grants. For 1984–85 it will receive an estimated £24·3 million, in rate support grant. Information on other grants for 1984–85 is not yet available. Figures for the two years are in any event not comparable because of major changes in grant arrangements between 1979–80 and 1984–85.

Mr. Lloyd: Does not the massive reduction in grant to the Tory-controlled Trafford authority, which is slavishly following Government policies, compare very oddly with the situation in Liverpool? Is the new money for Liverpool to be taken from inner city authorities? Furthermore, is the Minister aware that his Government's actions will be clearly interpreted as showing that the Government concede nothing to those who acquiesce, and give in only when resistance is shown, as in the case of the city of Liverpool?

Mr. Waldegrave: Thanks to its excellent Conservative administration, Trafford had a rate increase of 1·9 per cent. last year. Secondly, my right hon. Friend has made it clear that the small sum of money which may, if it carries out its rating obligations, be available to Liverpool from urban funds could have been available to the ratepayers months ago if the council had behaved responsibly. The money is not to be subtracted from anywhere else. It comes from the departmental budget.

Mr. Dicks: Can Trafford, or my own local authority, expect to enjoy the preferential treatment given to Liverpool, or do only militant local authorities get additional help?

Mr. Waldegrave: There is no preferential treatment whatsoever. The only result of the behaviour of Liverpool city council has been that industrial uncertainty has threatened jobs there and the ratepayers have lost money. In the end, the council has been given something which it, or any other local authority, could have got by sensible negotiations months ago.

National Mobility Scheme

Mr. Pavitt: asked the Secretary of State for the Environment if he will carry out a review of the national mobility scheme for local authority tenants and housing applicants.

Sir George Young: The national mobility scheme is a voluntary scheme agreed between most public housing authorities in the United Kingdom and I warmly commend its work in enabling nearly 13,000 households to move to new homes since it began in 1981.

Mr. Pavitt: Will the Under-Secretary condemn the inhumane operation of the scheme by some councils, including his own, in using it to decant their homeless families into other London boroughs? Will the hon. Gentleman confirm that, with his own borough of Ealing, according to its criteria, a person's household has to contain a person aged 60, or someone who is taking examinations, if that person is to retain the right to live in the borough, even if he has lived there for 30 years? Will the hon. Gentleman consult Shelter, which has a mass of information about the way in which boroughs are pushing their problems on to other areas?

Sir George Young: The hon. Gentleman seems to be referring to the Greater London mobility scheme rather than the national mobility scheme. In the light of recent publicity, I have made some inquiries about the borough of Ealing. In my view, the borough has done nothing that justifies the hon. Gentleman's language. The Greater London mobility scheme is very useful to boroughs such as Brent and Ealing, helping them to meet pressures from those on the waiting list.

Mr. Andrew McKay: As the excellent national mobility scheme can have only a limited effect because of varying regional demands for transfers, is it not true that the best way of maintaining and increasing mobility of labour is to sell far more council houses so that people can move more freely?

Sir George Young: There are indeed other ways of securing national mobility, and former council tenants who have bought their homes are now more mobile than they would otherwise have been. There are provisions in the Housing and Building Control Act for a right of exchange for local authority tenants. That would be another useful step.

Mr. Freeson: For those who need to improve their housing conditions and escape from the appalling conditions in which they currently live, would it not be better to increase mobility by increasing significantly—by many millions of pounds — the investment programmes of the local authorities and housing associations in the most hard-hit areas in the country? When will the Government face the fact that the only way to lift hundreds and thousands of people out of homelessness is to increase investment in providing decent alternative housing?

Sir George Young: I would agree with the right hon. Gentleman if he would include, in his incitement to invest, reference to investment by the private sector as well as the public sector. Brent has had one of the most generous housing investment programme allocations in London over the past two years, and when we allocate the


resources for next year I shall take into account the pressures in Brent which the right hon. Gentleman has mentioned.

Mr. Heddle: Does my hon. Friend agree that mobility would be increased for many hundreds of thousands of single people on house waiting lists, and they could be housed, if more tenants were aware of the right to sublet, which is enshrined in the Housing Act 1980? Will he ensure that all local authorities make their tenants aware of their rights, thereby increasing the supply of rented accommodation?

Sir George Young: My hon. Friend is right to remind the House that we have given public sector tenants the right to take in lodgers and, with their landlords' consent, to sublet part of their homes. We have also enabled councils to make homes available for up to one year for people who move into their areas to take up jobs. I shall bear in mind what my hon. Friend has said about a fresh publicity initiative to remind people of the generous provisions of the 1980 Act.

Mr. John Fraser: Is the Minister aware that there are strong social and economic grounds for having a national statutory mobility scheme? The purpose of mobility is to enable a tenant to move, for job or family reasons, from one part of the country to another. As long as Tory-controlled authorities such as Ealing use the mobility scheme as a means of kicking out their homeless people to much more hard-pressed Labour-controlled inner city boroughs, the scheme is being sabotaged. The Minister's borough is behaving like that.

Sir George Young: I utterly reject what the hon. Gentleman has said. In my advice bureau, I see people who are on the Ealing waiting list. Many of them are advantaged by the very scheme which the hon. Gentleman denounced. I cannot join him in his condemnation of Ealing council.

Nature Conservancy Council (Report)

Mr. Simon Hughes: asked the Secretary of State for the Environment whether he has received the report of the Nature Conservancy Council. "Nature Conservation in Great Britain"; and whether he intends to respond to it.

Mr. Waldegrave: My right hon. Friend welcomed the publication of the Nature Conservancy Council's strategy document "Nature Conservation in Great Britain" as "forthright, realistic and challenging." We are considering the action programmes it contains in the context of the NCC's corporate plan.

Mr. Hughes: Does the Minister agree with his right hon. Friend that, if a minuscule proportion of the money that is devoted to agriculture and forestry were spent on conservation, it would work wonders? What does his Department intend to do to correct the imbalance of funding between agriculture and conservation in favour of conservation?

Mr. Waldegrave: My Department will continue to work with the Ministry of Agriculture, Fisheries and Food to see that there is a properly balanced policy in the countryside.

Mr. Yeo: Is my hon. Friend aware that the Nature Conservancy Council is understaffed and that that was

recognised even by the Rayner scrutiny last year? Will he take steps to increase funding to enable the NCC to have more staff to cover its important work?

Mr. Waldegrave: Almost every suggestion that I hear is for more money. We are examining the NCC's corporate plan and shall discuss it with the council's chairman.

Mr. Ron Davies: Is the Minister aware of the strong criticism that is directed at his Department by the House of Lords Committee that deals with agriculture and the environment? Does he accept that there will have to be a fundamental change in the agricultural structures programme if our environment is to be properly protected? Will he explain what steps he is taking to ensure that there is a proper and realistic arrangement between his Department and the Ministry of Agriculture, Fisheries and Food to ensure that environmental issues are examined properly?

Mr. Waldegrave: I have studied the report's conclusions and I do not doubt that when Ministers in my Department and in the Ministry of Agriculture, Fisheries and Food discuss it, it might be possible to find further improvements.

Mr. Rowe: Is my hon. Friend aware that, although we warmly welcome the fact that his Department works closely with the Ministry of Agriculture, Fisheries and Food, we still do not know enough about the mechanisms through which that co-operation is achieved, nor do we know how best to carry on the debate to support changes in the agricultural support system? We should be grateful to hear more about those procedures.

Mr. Waldegrave: It is difficult to give a full description in answer to a question, but I assure my hon. Friend that there are regular meetings of Ministers in the two Departments to discuss these issues.

Dr. David Clark: In view of warnings of pollution damage to the British countryside in the NCC report, including three lochs in Scotland, and fish loss in the English Lake District, how can the Government justify their inactivity over the reduction of air pollution?

Mr. Waldegrave: There is no such inactivity. We have committed ourselves to further reductions of acidifying pollutants. The hon. Gentleman might have noticed that the Freshwater Biological Association said that there has been no acidification in the lakes in the Lake District that it was measuring.

Motorway Service Areas (Green Belts)

Sir John Biggs-Davison: asked the Secretary of State for the Environment what is the policy of Her Majesty's Government regarding the siting of motorway service areas in green belts.

Mr. Macfarlane: The general presumption against development in the green belt is not affected by motorways, and there should continue to be the strongest restraint on development. However, once the decision has been taken to construct a motorway it will from time to time be necessary to consider whether there is a case to provide adequate ancillary services for motorway traffic. If such provision is proposed in the green belt, the case for an exception to policy will have to be argued fully in


consultation with the local planning authorities concerned, under the provisions of Department of the Environment circular 7/77.

Sir John Biggs-Davison: Will the Government keep particularly in mind the importance of the sanctity of the green belt in making these decisions on the siting of motorway service areas?

Mr. Macfarlane: We have no general presumption against that, but motorways and motorway service areas do not affect the general presumption against development in the green belt, and there should continue to be the strongest constraint on such development. I am well aware of the problem facing my hon. Friend in his constituency, and my right hon. Friend the Secretary of State for Transport wall be writing to him.

Mr. Tony Banks: Has the Minister had an opportunity to re-think the Government's proposals for the London green belt, and perhaps change his mind with regard to the breaking up of the 11,000 acres which the Greater London council currently owns in green belt land and giving it to the boroughs and districts, because frankly that does not look as though it is going to work, and it needs to be a unitary authority. The GLC has done a good service in this respect.

Mr. Macfarlane: I do not accept the latter observation of the hon. Gentleman. Indeed, the all-party Select Committee came out against that in its observations. The matter is now under consultation, which the hon. Gentleman well knows.

Mr. Hanley: Does my hon. Friend agree that full use of the M25 will assist the local environment in urban and rural areas. and that an adequate system of motorway service stations on the M25 will save many drivers, perhaps thousands, wandering round green belt areas trying to find food and petrol?

Mr. Macfarlane: I am sure that my hon. Friend has put matters in the order which interests him most of all. I will certainly draw the comments of my hon. Friend to the attention of my right hon. Friend the Secretary of State for Transport.

Privatisation

Mr. David Atkinson: asked the Secretary of State for the Environment if he will make a statement on the progress of his plans to encourage local authorities to reduce expenditure by putting services out to private contract.

The Minister for Housing and Construction (Mr. Ian Gow): Because of the slow progress made by many local authorities in putting their services to the test of competition, we are considering what measures can be taken to speed up the process and get better value for money.

Mr. David Atkinson: Is it not a public scandal that over 90 per cent. of all local authorities have not explored the scope for privatisation, despite the dramatic savings

that have been made by those that have? Will my hon. Friend now emulate his right hon. Friend the Secretary of State for Social Services and ask local authorities to submit plans to put specific services to the test of competition and to explore the scope for others?

Mr. Gow: As to the first part of my hon. Friend's question, he is right. Despite estimated annual savings of some £7 million, from 23 contracts let so far for refuse collection and street cleaning, not one of those councils is Labour-controlled. Next week the Chartered Institute of Public Finance and Accountancy will publish a management guide to contracting out in local government, a project which was part-funded by my Department. I hope that that publication will be widely studied, particularly by Labour-controlled authorities.

Mr. Haynes: Is the Minister aware that the Ashfield district council in my constituency wants to make it clear to him that he should keep his grubby fingers off the refuse collection service in that district? When he talks about reduced expenditure, we all know what that means—disgruntled ratepayers and rubbish all over the streets where the collectors will not go back to pick it up when they have dropped it. The Minister should keep his grubby hands off the Ashfield service.

Mr. Gow: The hon. Gentleman is not living in the real world. The experience of ratepayers where the local authorities have contracted out services is that there has been an improvement in the service and a substantial reduction in cost. The hon. Gentleman ought to have more concern for his own ratepayers.

Mr. Tracey: Will my hon. Friend take note of the achievements of various London boroughs, particularly Conservative ones, including Wandsworth and other London Conservative-controlled boroughs, and will he take note of the early-day motion tabled by my hon. Friend the Member for Southampton, Itchen (Mr. Chope), and put services out to tender?

Mr. Gow: I have seen the early-day motion tabled by my hon. Friend the Member for Southampton, lichen (Mr. Chope) and signed by a large number of my right lion. and hon. Friends. The Government are considering what further steps to take to encourage local authorities to put these works out to competitive tender.

Mr. Fatchett: Before the Minister goes ahead with compelling local authorities to privatise services, will he, in the name of open government, publish on all occasions the minutes of meetings that he has with the associations of private contractors that deal with these matters? As the public are interested in this, will he also publish the names of Conservative Members who have financial interests in such companies, because I am sure that it is not just my hon. Friend the Member for Ashfield (Mr. Haynes) who would like to see the dirty fingerprints that will be on these contracts?

Mr. Gow: That question is unworthy even of the hon. Gentleman.

Youth Service (Report)

The Secretary of State for Education and Science (Sir Keith Joseph): With permission Mr. Speaker, I should like to make a statement about the report of the review group on the youth service.
When this report—appropriately entitled "Experience and Participation"—was published, I described it as a timely and far-reaching study of the ways in which the youth service was helping young people, and I said that it offered some important recommendations for the development of the service. Decisions on certain of those recommendations have already been announced to the House. I turn now to decisions on the outstanding recommendations directed to central Government, to which I have given careful consideration in the light of the many comments received during consultation.
I accept the review group's recommendation that it would be helpful to the field for there to be a publicly known unit in the Department dealing with youth service matters, and I propose to identify such a unit.
In line with the review group's recommendations, grant aid is being made available to voluntary organisations for experimental projects in managerial innovation in the youth service and for the training of part-time and volunteer staff in particular. The National Council for Voluntary Youth Services will be consulted about the allocation of these resources. As far as the review group's recommendation on grant aid for regional and county voluntary organisations is concerned, the Department already grant aids national voluntary youth organisations and I consider that it is primarily for these national organisations to support their regional and county bodies, as a number do now. On financial grounds, it has not been possible at the present time to accept the review group's recommendation for mandatory grants for students on youth work courses. I shall, however, continue to keep the important area of youth work training under careful review.
The Government have considered with great care the review group's recommendations on legislation, but do not consider that it would be appropriate to introduce new legislation relating to the youth service unless legislation dealing with the whole statutory framework of post-school education were being proposed. This is not the case. As I told the House on 10 April, I take the view that existing legislation for post-school education remains broadly adequate for its purpose. I further consider that existing legislation provides a similarly adequate base for youth service provision. I do, however, recognise the need for additional guidance to the youth service, particularly as regards the important areas of co-operation between the voluntary and local authority sectors and the need for effective management of available resources. I am consequently issuing today for consultation the draft of a circular setting out the Government's views.
Finally, I have also given careful consideration to the recommendation for a national body to offer advice on questions arising on youth affairs. I have noted, particularly, the considerable support expressed in the report of the review of the National Youth Bureau. In view of the range of activities currently undertaken by the youth service, I am persuaded that a role exists for a small advisory body capable of offering informed advice to me,

to my right hon. Friend the Secretary of State for Wales, and to others with youth service responsibilities on the appropriate scale and direction of youth service activity, having regard to the available resources.
I accordingly propose to establish such a body within the next few months for an experimental period of three years in the first instance, subject to review at the end of that period. I shall appoint, in conjunction with my right hon. Friend the Secretary of State for Wales, individual members to this body in a personal capacity. In making choices for membership, I shall have regard to the broad range of interests in youth service and to advice I may receive on membership from those active within it. By these arrangements the Government intend to develop further the youth service partnership, both at national and local levels, for the benefit of all young people.

Mr. Giles Radice: Is the Secretary of State aware that it is nearly two years since the Thompson committee report was published? Is he aware that that committee was set up to buy time and to divert the wrath of Conservative Back Benchers? Is he further aware that, after all this delay, most hon. Members, including all his hon. Friends, will feel that he has just produced a pathetic mouse of a statement?
Does the right hon. Gentleman not agree that the two central Thompson recommendations—that there should be statutory backing for local authority youth provision and that the youth service should be adequately funded — have both been decisively rejected by the Government? How can the House take seriously the Secretary of State's concern for youth when the latest public expenditure White Paper shows that he plans to cut youth spending on the service by 17 per cent. in real terms over the next three years, and when the Government are seeking to impose spending plans on LEAs by targets, penalties and, of course, by rate capping as well after next year? Above all, how can we take the Secretary of State seriously when well over a million young people under 25 do not have a job?
Coming to other Thompson proposals, what about political education, which Thompson believed to be essential? We have not heard about that. What about the need to combat racism and to take account of the requirements of ethnic communities? We have not heard anything about that. Where in the Secretary of State's statement is there any mention of Thompson's proposal to encourage participation by young people in decision making and community affairs? What about the idea of a Minister for youth? He did not mention that.
Is it not the truth that the Secretary of State pays lip service to the needs of young people and to ideas such as the International Year of Youth but has completely failed to apply his mind and his imagination to the problems facing youth today: lack of jobs, inadequate facilities and services, and their sense of having no control over their lives? As a result, he has missed a great opportunity for which many hon. Members, including Conservative Members, and people outside the House will not lightly forgive him.

Sir Keith Joseph: The hon. Gentleman is indulging in rhetoric. It is true that it is nearly two years since this committee's report was published, and it is an excellent report. The consultation period ended 15 months ago. But


evidently the hon. Gentleman has failed to know that three of the Thompson committee recommendations have already been answered.

Mr. Barry Sheerman: We all know that.

Sir Keith Joseph: The hon. Member for Durham, North (Mr. Radice) plainly did not know that the Government have already replied to the Thompson recommendation that there should be a Minister for youth. The Prime Minister turned that down because she said —in my view absolutely rightly—that it would make existing co-ordination worse.
There have been Government announcements in response to the Thompson recommendation on the setting up of a committee for the training of youth workers. That committee now exists, under the chairmanship of Professor James.
The Thompson committee's third recommendation, which has already been answered by the Government, was the inquiry into the National Youth Bureau on which the Government have already received a report which they are considering.
The period since the Thompson committee reported has already been put to good use. There is no recommendation in that report on what the hon. Gentleman referred to as adequate funding. As for political education, racism and ethnic minorities, these do not call for any particular Government action but are recommendations to the field.
Finance for the youth service is not being cut, as the hon. Gentleman suggests.

Mr. Radice: Yes it is.

Sir Keith Joseph: The hon. Gentleman has again demonstrated that he does not understand the public expenditure reports which he studies, because he has again ignored the unallocated margin, from which the youth service will presumably get its share.
The big difference between the Thompson report and the Government is that, although the Government value the report and regard it as excellent, they are not convinced that new legislation is necessary, because no evidence is adduced that anything which the youth service wants responsibly to carry out is frustrated through lack of legislation.

Mr. David Madel: As the Manpower Services Commission is now so involved in education and is currently underspending on some of its projects, will my right hon. Friend look to the commission to help with the extension of an improved youth service, including the valuable work done by the Open University in helping with the training of part-time and voluntary youth workers?

Sir Keith Joseph: I am grateful to my hon. Friend. A youth service representative sits on the Youth Training Board and there are youth service participations in various MSC activities. However, my hon. Friend's suggestion should be directed to my right hon. Friend the Secretary of Stare for Employment.
As to the Open University, the Government are already funding some training for part-time voluntary workers in the youth service and are considering an extension of that training.

Mr. Clement Freud: How will the Secretary of State's reaction to the Thompson

report help the young unemployed? Does he accept that, as he has ignored so many of the Thompson committee's recommendations, it will not be easy for him to get people of excellence to serve on other committees?

Sir Keith Joseph: I think that the hon. Gentleman has got it wrong. The Thompson committee does not make any recommendations to central Government about the work of the youth service in relation to the unemployed. It correctly praises the splendid work done by many parts of the youth service in connection with youth. The hon. Gentleman says that the Government have ignored youth service recommendations, but very few have been turned down. I repeat that there is a difference of opinion about the need for legislation, and that there is no evidence in the report that the youth service finds any difficulty in carrying out what it judges to be right because of a lack of legislation.

Mr. Alan Haselhurst: Doubtless my right hon. Friend will assess the Opposition's reaction in the light of five years of Labour Government, during which they twice managed to reject Bills that were the successors in title of the one that I originally introduced. However, will he bear in mind the fact that his understandable reluctance to legislate himself at present may encourage some local authorities to undervalue the role of the voluntary sector? Will he ensure that, as a result of his circular local authorities realise that the voluntay sector can contribute to the discharge of statutory functions, which those authorities need not necessarily discharge themselves?

Sir Keith Joseph: I agree with my hon. Friend. Hon. Members should remember that, during the Labour party's aggregate of 17 years in office, no legislation for the youth service was suggested or carried through. However, I agree that some local authorities seem to undervalue the good work that can be done by the youth service. I hope that the circular will encourage them to take it more seriously.

Mr. Derek Foster: Is the Secretary of State aware that his response to the Thompson report will be viewed with profound dismay by the whole youth service? Three years after the Thompson committee was set up in order to take the heat out of a Conservative Back-Bench revolt, the right hon. Gentleman has ignored most of the report's recommendations and has given us a wholly appointed advisory body. That will be viewed as totally inadequate. He is being contemptuous of the youth service and of young people.

Sir Keith Joseph: But the advisory body that we are setting up will be constituted on the very, basis that the voluntary sector asked for.

Mr. T. H. H. Skeet: Is my right hon. Friend aware that at least three of us on this side of the House introduced legislation because we thought that such legislation was vital, and that there has been no legislation on this subject for the past 40 years? When will he be prepared to consider realistically the need for legislation and to give the youth service the resources to which it is entitled?

Sir Keith Joseph: I am well aware of my hon. Friend's initiative in this area, but that admirable report was unable to produce evidence that the youth service found any difficulty in fulfilling its functions through lack of


legislation. Therefore, the Government will legislate on this subject only when they think that it is really necessary to enact new legislation on further education, and they are not at present convinced of that need.

Mr. Allan Rogers: Although I applaud the report's authors for their comprehensive review of the youth service and for the fact that they have drawn attention to the gross under-funding that is apparent in the youth sector and to the very patchy provision for the young particularly in Conservative-controlled authorities, I am amazed at the Secretary of State's selective approach to its recommendations. I note with dismay that he is setting up yet more managers and advisory bodies—despite the fact that the National Youth Bureau and the Youth Service Forum are already available for advice—and that he still refuses to fund the training of youth workers, which is vital.
The right hon. Gentleman's approach is appalling. It is not good for the youth service. It would have been better if he had been able to tell the House today that he was prepared to accept the Thompson report as it is instead of being selective about it.

Sir Keith Joseph: It is very odd that I should be charged with ignoring the Thompson report and then be accused of setting up another advisory committee. The Thompson report particularly recommends the setting up of a national advisory committee.

Mr. Patrick Thompson: I welcome my right hon. Friend's long-awaited statement. It may not satisfy all the requests that the Government have received from youth organisations, but does my right hon. Friend agree that it must be right to emphasise voluntary work and voluntary organisations as the Government are doing? Does he agree that, for every £100 voluntarily spent upon youth work, £1,000 in resources is generated to help young people between the ages of 11 and 21?

Sir Keith Joseph: Yes, I agree with my hon. Friend. Hon. Members on both sides of the House agree that the report is excellent. Almost ten times as many resources come from the voluntary sector as from the public sector. The whole burden of the report is that good management is essential. The report comes back to that again and again. With better management we can make even better use of the splendid work of the youth service.

Ms. Clare Short: Is the Secretary of State aware that the current generation growing up in Britain is facing the hardest and most blighted future of any generation since the war? Does he agree that the major cause of the problem is the high unemployment level—one in two of under 18-year-olds and 1 million under 25-year-olds are unemployed, and many have been so for a year or more? Does he agree that this creates a crisis and a massive demand on the youth service which it has not faced before?
Does the right hon. Gentleman accept that the Thompson report identifies unemployment and its consequences, and racism and homelessness, as major problems and says that the service is patchy and disorganised and needs co-ordination at national and local level? Is the right hon. Gentleman aware that nothing that he has said today will remedy the problems?

Sir Keith Joseph: The report explicitly dismisses any suggestion of a crisis among youth in this country —[Interruption.] I am quoting from the report. The report emphasises that resources could be better used with an improvement in management.

Mr. Roger Gale: Does my right hon. Friend recognise that many of my hon. Friends will welcome the creation of a unit to deal with youth service matters. My right hon. Friend said that he intended to
develop further the youth service partnership, both at national and local levels, for the benefit of all young people.
Given the emphasis on funding for headquarters groups, can my right hon. Friend explain how his circular will encourage involvement, participation and consultation between voluntary bodies at local level?

Sir Keith Joseph: There are particular suggestions in the circular to encourage that crucial recognition by local education authorities of the need to involve voluntary bodies in the creation of plans rather than after the plans have been made.

Mr. Eric Deakins: By giving the thumbs down to the youth service in his statement, has not the Secretary of State given a clear signal to local authorities throughout the country that they can cut back on this non-statutory service at a time of increasing financial stringency? Does the right hon. Gentleman accept that it is wrong to under-value the potential of the youth service for achieving desirable social objectives for young people at a time of rising tension and rising unemployment among that generation?

Sir Keith Joseph: I seem to be one of the only people who have read the report—few Opposition Members seem to have done so. The report emphasises in chapter after chapter that there could be better management of the large resources with great benefit for the youth service. [Interruption.] The hon. Member for Bolsover (Mr. Skinner) mutters from a seated position. There is 10 times that, of which 90 per cent. comes from voluntary services.

Mr. Harry Greenway: Is my right hon. Friend aware that from my long experience of running voluntary youth clubs—in east London with Peter Duke, who became the first principal of the college for training youth leaders, in King's Cross and west London — I found that voluntary activities and youth clubs were much more effective than those which were funded? Does he accept that the great problem is how to handle the unclubbable? Will his circular on youth services issue guidelines and help for dealing with that important but difficult element?

Sir Keith Joseph: The report pays tribute to the often very effective work of detached workers in reaching those who are not always accessible otherwise. The circular encourages all aspects of youth service.

Mr. Nicholas Brown: How will the Secretary of State respond to the recommendation in chapter 8 headed "Structures", which deals specifically with the structure at local level? How does he deal with the recommendation that at the centre of the local structure there should be a joint committee, to which specific functions and powers should be delegated by the local authority, and on which representatives of voluntary organisations of young people and of the local authority should work together to frame a review policy


and to monitor performance? How does the Secretary of State square that with his statement that he will not produce legislation?

Sir Keith Joseph: Because in most cases local authorities conform with that practice and the circular, which is being issued for consultation today, will encourage those who do not, to do so.

Mr. Geoff Lawler: In welcoming the long-awaited response from the Government on the Thompson report, does my right hon. Friend recognise that there will be great disappointment in the service that it will not be given a statutory base, which would have ensured that all local authorities at least provided a minimum standard for the service? Will he assure the House that the circular mentions and encourages the participation of young people at local level?

Sir Keith Joseph: Yes, Sir. I can give that assurance.

Mr. Reg Freeson: The Secretary of State, at least twice in answer to questions, said that he did not feel that it was right to introduce a statutory base for the youth service because it needed to be linked with fresh legislation on further education, to which he is also opposed. Will he please reconsider this, because it is a fundamental question which requires attention, and at least give authority within the remit to the proposed youth advisory committee for it to look wider than merely at the youth service itself? The committee should be able to look at other aspects of youth affairs, including the prospects for broader legislative reform in the provisions for 16- to 19-year-olds in the youth service and other areas.

Sir Keith Joseph: No, I am not convinced and do not expect soon to be convinced that there is a need for such legislation.

Mr. Timothy Wood: I am one of those who believe that on the whole we should avoid too much new legislation, and I welcome the restraint of the Secretary of State in that regard. I emphasise the point about the importance of voluntary organisations. Will the Secretary of State further clarify the amount of increase that may have been given to voluntary organisations recently?

Sir Keith Joseph: Yes, Sir. I cannot commend too highly the vitality of voluntary organisations. I only hope that the better management for which the report calls will make even better use of it.

Mr. Greville Janner: Is the right hon. Gentleman aware that, when one runs a voluntary youth organisation as some hon. Members such as I did before coming to the House, good management is no substitute for adequate funding and that the poorer and more disadvantaged the area, the more difficult it is to supplement funding from public sources by private donation, whether from parents or anyone else? Does he realise that the failure of the Government to accept the Thompson recommendation that voluntary services should be adequately funded will destroy any good intentions that he might have in other respects?

Sir Keith. Joseph: Opposition Members never find difficulty in spending yet more money from the taxpayer, but the Government believe that we are already overspending. That is why we should emphasise the scope

for a better youth service via better management; I say that even to someone with the hon. and learned Gentleman's experience.

Mr. Michael Stern: Will my right hon. Friend fill a gap in an otherwise admirable statement and explain to the House the extent to which his statement will enable the youth service to have adequate clout, compared with statutorily funded parts of the education service, in obtaining its fair share of educational resources from financially pressed education authorities.

Sir Keith Joseph: There is no evidence that the youth service is being discriminated against by local authorities, despite their difficulties.

Mr. Paddy Ashdown: Does the Secretary of State accept that the central recommendation of the Thompson report was for a statutory youth service? Does he also accept that the present permissive nature of the youth service means that it is always the Cinderella of local government — cut and cut again — and that those pressures will increase as a result of the Government's restraints on local authority spending, at precisely the time when the youth service must increasingly carry the burden of youngsters' problems as a result of unemployment and social deprivation? Does he realise that his statement will be seen by many as a betrayal of the youth service, as ignorance of youngsters' problems and as an opportunity missed for the Government to redress some of the difficulties that their policies have created?

Sir Keith Joseph: Public spending on the youth service has been maintained during the past four years and it could be used better. That is the emphasis of the report.

Mr. Richard Tracey: I truly hope that my right hon. Friend will reject many of the social engineering suggestions from the Opposition and will instead concentrate on sound secondary education, support for voluntary organisations — it may be appropriate to mention the scouts today—and a sound family life.

Sir Keith Joseph: I agree with every word that my hon. Friend uttered and accept the tribute paid in the report to the uniformed and church bodies.

Mr. D. N. Campbell-Savours: Does the Secretary of State accept that his statement has ducked the issue of funding and failed to meet the expectations of thousands of youth workers? Is it not strange that, on the day when the Government come before the House and refer to public expenditure restraints on the youth service, within half an hour the House will be discussing an amendment to the Finance Bill to hand back hundreds of thousands of pounds in capital transfer tax concessions to people who own stud farms? The Government's priority is for stud farms, not for people who deal with the problems of an unemployed Britain.

Sir Keith Joseph: I am not the least impressed—nor will the youth service be—by Labour Members ignoring the main emphasis of the report, which is the need for better management of the considerable resources available to the youth service.

Mr. William O'Brien: As it has been pointed out, realistically, that his statement will not help youth, will the Secretary of State have regard to a


statement made by Her Majesty's Inspectorate earlier this week on the role of college training in the youth training scheme? The Times yesterday stated:
Poor links between further education colleges and employers managing the Youth Training Scheme have undermined the scheme's educational success in its first year, Her Majesty's Inspectorate reported yesterday.
Will the Secretary of State take on board the criticisms in that report and introduce a scheme to improve the relationship between the colleges and YTS?

Sir Keith Joseph: I read most, and I welcome all, HMI reports. I read with special interest recently the report on three youth clubs in Lambeth. I hope that the hon. Gentleman will also read it.

Mr. Simon Hughes: Does the Secretary of State accept that members of youth committees meeting week after week, such as the one that I attended in Southwark last night, with the best management skills and with officers working many hours of overtime, cannot produce facilities without resources? Unless the Secretary of State announces something this afternoon, he will have done nothing for the youth service and nothing to encourage youngsters to believe that Parliament cares for their future.

Sir Keith Joseph: I hope that the hon. Gentleman will devote some of his energy to reading the recently published report on three youth clubs in Lambeth, which showed that large resources are being greatly under-used.

Mr. Radice: Is it not true that the Secretary of State has ignored the two central Thompson recommendations —he must admit that, whatever else he says—which are statutory backing for local authority youth provision and adequate funding for the youth services? The paragraphs on funding are 10.24 and 10.25, in case he has not read them. Has he not also shown himself this afternoon to be completely insensitive to the problems of young people in Conservative Britain, especially the 1·2 million young people who are unemployed? As his statement had received so little support in the House, will he now withdraw it?

Sir Keith Joseph: Not at all, because the main finding of the report is that there could be better use of the substantial resources available. I echo the report's tribute to the work being done in the youth service, but I am not convinced that we need legislation.

British Tanker (Gulf Attack)

The Minister of State, Foreign and Commonwealth Office (Mr. Richard Luce): With permission, Mr. Speaker, I should like to make a statement on yesterday's attack on a British vessel in the Gulf, north-east of Bahrain.
At approximately 1200 hours GMT, a British-owned and registered tanker, the British Renown was attacked from the air and struck by two missiles, which I am glad to report caused little damage and no casualties among the crew, nearly all of whom were British subjects. The British Renown is now anchored nine miles off Dubai, and a member of the staff of our consulate general has gone on board to render any assistance that may be needed.
All the available evidence is that the attack was made by aircraft of the Iranian air force. Accordingly, in the absence in Tehran of the Iranian chargé d'affaires, we have summoned the next most senior member of the Iranian embassy in order to deliver a strong protest. Her Majesty's Government have made it clear that this deliberate, unprovoked and wholly unjustified attack is totally unacceptable.
My right hon. Friend the Secretary of State for Transport has reviewed his advice to British shipping in the Gulf in the light of this incident. While it is for the companies themselves to inform their crews about the risks involved, he has re-emphasised the need for British shipowners to take this incident into full consideration in deciding whether to enter the Gulf and to exercise all necessary vigilance while there.
Her Majesty's Government deplore this incident, and indeed all attacks on shipping in the Gulf area. They are further proof of the need to see an early end to the continuing conflict between Iran and Iraq. We shall continue to support all serious efforts to bring that conflict to an end, and in the meantime will vigorously uphold the principle of freedom of navigation, which has been reaffirmed by successive Security Council resolutions.

Mr. Donald Anderson: The Minister will know that we deplore the unprovoked attack, agree with the protest action that the Government have taken, and share their sense of relief that the attack caused no damage, or loss of life or injury to our seamen. Did the attack take place within the war zone, as determined by negotiations between the employers and the National Union of Seamen? Were the seamen on the ship volunteers in the full sense of the word? What is the nature of the review of the advice which the Secretary of State for Transport gives British shipping? On the strength of what has been said today, it would seem to involve no real change in the earlier advice.
The Minister will be aware that there had earlier been evidence of a lull or decline in the number of such incidents. In the view of Her Majesty's Government, has that decline been due in part to the efforts of the Gulf Co-operation Council? If so, will the Government encourage the GCC to keep up its pressure on the belligerents to agree to rules on freedom of navigation and the safety of ships entering the Gulf and plying international waters? Has not this incident reminded us yet again of the risks to our shipping in the Gulf? Will the British insurance companies, as a result of this incident, be reviewing their premium rates?
On the general issue of the Gulf, are the Government aware of the need to involve the Soviet Union in the area, where there are certain shared interests between Russia and ourselves and our allies? Does the hon. Gentleman agree that the Soviet Union could play a positive role?

Mr. Luce: The answer to the hon. Gentleman's first question, about where the attack took place, is that it occurred several miles north-east of Bahrain, which is in the war risk zone as defined by the General Council of British Shipping. It follows from that that, as a result of discussions between the General Council of British Shipping and the seafarers' union, anyone who enters the war risk zone does so as a volunteer. We must assume, therefore, that all British subjects on the ship were volunteers.
The answer to the hon. Gentleman's question about the nature of the advice given by the Secretary of State for Transport is that I explained the present position in my statement. As the hon. Gentleman will be aware, at the end of May my right hon. Friend drew the attention of the General Council of British Shipping to the heightened risks involved in the Gulf as a result of the serious incidents which took place particularly during May. I am sure that my right hon. Friend will agree that it is fair to say that there has been no substantial change in the advice, save only to draw attention to this incident.
It is absolutely right to say that the Gulf states are working extremely hard — this answers the hon. Gentleman's question about the Gulf Co-operation Council—behind the scenes, at the United Nations and elsewhere, to try to get not only restraint but mediation to end the war.
Premium rates are a matter for the insurance companies and riot for the Government. The companies are aware of the risks; it is therefore for them to determine the rates. It is not a matter for the Government to decide.
The answer to the hon. Gentleman's question about the Soviet Union is that, when the Secretary of State for Foreign and Commonwealth Affairs was in Moscow recently, he discussed stability in the Gulf.

Mr. Eldon Griffiths: Is my right hon. Friend aware that those of us in the British-Iranian Society in the House who seek to keep alive some form of relations with Iran, despite the conflict, join my hon. Friend in deploring this act, which will make more difficult the resumption of any kind of relationship with Iran?
On the matter of international waters, can he confirm that the United States has been escorting some of its merchant vessels in the area? What is the position in respect of the provision of escort for British vessels which might be placed in difficulty?

Mr. Luce: On my hon. Friend's last point—I agreed with everything he said at the beginning of his remarks —I can say clearly that the United States Government have made it plain that at present they have no policy to escort merchant shipping. All effort is going into seeking restraint in the area by diplomatic means, and therefore there is at present no policy to escort merchant ships or tankers.
The same applies to British merchant ships. The risks involved are known to them and my right hon. Friend takes great care to ensure that those risks are well known. It is their choice. I am sure that my hon. Friend will accept that

for us to go a stage further and, for example, provide convoy protection would involve serious and wide political implications which we should seek to avoid.

Mr. Russell Johnston: Is it not a fact that our trade with Iran is now much greater than it was in the days of the Shah's rule and that we are thereby making a significant contribution to Khomeini's war machine, from which we have on this occasion suffered a relatively insignificant effect compared with some of the unutterably awful things that are happening in the war? Is the hon. Gentleman aware that, unless the Government are prepared to do something about this trade situation, all the talk about wishing to end the conflict and about freedom of navigation and the rest is no more than crocodile tears?

Mr. Luce: The hon. Gentleman is absolutely wrong to suggest that our policies are making a contribution to inflaming the situation between those two countries. We trade, but we trade with both. In ordinary commercial terms, we have, it is true, substantial trade but it is with both countries.
As for the war, the hon. Gentleman knows that we remain neutral and do not sell lethal arms; we sell only non-lethal arms—[Interruption.]—to both sides. That remains our policy. Our view is that the best contribution that we can make to restraining the situation between Iran and Iraq is not to sell lethal arms. Other countries are selling such arms. If they were to make the contribution that we are making, that in itself would be constructive.

Mr. Jonathan Sayeed: What was the loading port of this ship in the Gulf?

Mr. Luce: I can only say at present that it has returned to Dubai. It was on its way to offload oil from another ship, Liberian-registered and Swiss-managed, oil which —this must remain subject to confirmation—was to be taken to the Arab Emirates.

Mr. Tom Clarke: The Minister has spoken of the Government's anxiety to end the conflict. What positive steps have the Government taken within the United Nations to try to end hostilities?

Mr. Luce: We are constantly trying through various diplomatic channels, including — I would almost say above all — the United Nations, to work with other countries towards a diplomatic resolution of the problem. A notable development since I last made a statement on an incident involving a British ship is that the Secretary-General of the United Nations has persuaded both Iran and Iraq to stop attacks on civilian targets on both sides, and we must hope that that holds. I believe it is the first time that both countries, in however limited a way, have sought to co-operate with the United Nations.

Mr. Terry Davis: May we have an assurance that, if any British seamen are injured in this or in any similar attacks, they will be brought back to this country for medical treatment as quickly as possible? May we have a further assurance that should any of them turn out to be British subjects without the right of abode in this country they will not be charged for any medical treatment which they receive in hospitals under the National Health Service as the result of regulations introduced by this Government?

Mr. Luce: I assure the hon. Gentleman—I am glad that on this occasion there is no evidence of any casualties —that the highest priority would be given to providing the kind of protection and support that they would need.
I wish to clarify one point about my earlier remarks when I talked about lethal and non-lethal arms. I meant to refer to non-lethal equipment, not arms.

Mr. Allan Rogers: Is the Minister aware that, as a result of the escalation of hostilities and the difficulties arising in the Gulf, we may soon have a severe oil shortage in Britain? Will he ask the Prime Minister to get on with the job of settling the coal strike to ensure that fuel supplies to our industries are maintained?

Mr. Luce: The distance between the Gulf and the coal strike is considerable. Oil supplies generally are stable, as we have seen from the evidence of the last few months. Stocks of oil in the world are very high. There is cooperation among all the Governments most concerned about imports of oil from the Gulf to ensure that, should the situation deteriorate, adequate emergency measures can be taken.

Mr. Jeremy Corbyn: Does the Minister accept that the British attempts to bring an end to the war and peace to the Gulf are severely hampered by the continued sale of arms and equipment to both sides in the war, thereby prolonging the conflict and the war? It makes efforts to bring peace to the area so much nonsense when blood money is being made in Britain by the sale of arms and equipment to both sides.

Mr. Luce: It is our hope and wish that other countries will follow our example and not sell lethal equipment and arms. If they do that, the prospect of reducing the really serious effects of the war would be much stronger. We ask other Governments to follow our example.

Mr. Robert Maclennan: The Minister has said that the assessment of risk on entering the war zone must be one for the shipping companies. What British interests are preserved by companies deciding to shoulder the risk? Do the Government have any view on whether our interests are better served by ships entering the war zone or not entering it?

Mr. Luce: British interests are not confined to stability in the Gulf. The western world, let alone Britain, is concerned that there should be a free flow of oil from the Gulf. That is clearly a British interest. It is not for us to dictate to shipowners what they should do. They know precisely what the risks are and it is for them to make a decision. I think that that is the right approach.

Mr. Tam Dalyell: Does the Minister accept—I am sure he does—that there is real anxiety among many seafarers' families? When he says that other countries should follow our example, should he not go a little carefully? After all, it was we who were casual two years ago about changing the rules of engagement. What are the rules of engagement, and what exactly is the war risk zone? What information does the Foreign Office have on this touchy and difficult subject from the authorities in Tehran? The safety of many sailors is at stake.

Mr. Luce: I appreciate what the hon. Gentleman has said about the natural anxiety of seafarers. That is why it is sensible that shipowners and the seafarers' union reach

an understanding about the arrangements for the northern part of the Gulf, where there is the greatest risk, so that seafarers go there as volunteers and not compulsorily. It is their choice and I can understand why they have taken their decision.
I do not understand the hon. Gentleman's question about rules of engagement. We are not involved in a military sense on the Gulf and there is no question of us considering the rules of engagement.

Mr. Dalyell: What have the Iranians said about this?

Mr. Luce: I did not catch that.

Mr. Greville Janner: What have the Iranians said about this? What response has the Minister received to his thoroughly proper complaint to the Iranian embassy? What is his definition of non-lethal equipment which we are prepared to supply? Does this mean transport and other forms of equipment which make it possible to operate lethal arms and other equipment?

Mr. Luce: As I have said, we have approached the Iranians and have told them exactly what we think about the incident. We now await a response from the Iranian Government. I do not know how long that will take so I cannot give a direct answer to that part of the hon. and learned Gentleman's question.
I accept that there are enormous difficulties in interpreting what is non-lethal equipment and what is lethal. It has to be assessed whether the sale of particular equipment is likely in any way to exacerbate the war between Iran and Iraq.

Mr. Dennis Skinner: Why do the Government not do the decent thing and instruct all those who are engaged in this deadly traffic to stop trading in oil while the war takes place? Are the Government so concerned to try to defeat the miners—they will fail, of course, as most of the nation now knows—that they are prepared to put seafarers' lives at risk? Is that what the Government really believe in? Are they prepared to put people's lives at risk to make profit while trying to defeat the miners at the same time? Why do they not put a stop to this deadly business?

Mr. Luce: The hon. Gentleman's remarks about the Government's attitude to seafarers' lives are so contemptible that I have nothing further to say.

Mr. John Prescott: The House will welcome the fact that no seamen were injured in this deplorable incident. The incident serves to remind us of the dangers facing British seamen, especially on a day when the House will be voting to remove the tax allowance from seafarers. Is the Minister aware that the review to which he has referred is one that I asked for two months ago of the Foreign Secretary and the Secretary of State for Transport? In asking for a review, I requested that British ships and seamen be removed from the danger area as the Japanese Government have removed Japanese shipping and seamen. Will he review the Government's policy yet again and give further consideration to the removal of our ships and seamen from this area?
The Minister has referred to an agreement in the industry, but is he aware that many British ships are not covered by industrial agreements and that attacks have taken place on British ships which have foreign crews? Has the Foreign Office been concerned to protest about


those attacks? Can we be assured that there is no differentiation in the Department's view of British ships whatever their crews?

Mr. Luce: I can give the hon. Gentleman that assurance. I appreciate his close concern with the issue, bearing in mind his other responsibilities and interests. I know that he has been in close touch with my right hon. Friend the Secretary of State for Transport and I shall draw his attention to the hon. Gentleman's remarks. The agreement or understanding was drawn up only after careful consultation with my right hon. Friend the Secretary of State for Transport and the Foreign Office. We shall keep the matter under careful review. I have noted exactly what the hon. Gentleman has said.

SCOTTISH AFFAIRS

Ordered,
That the matter of the health service in Scotland, being a matter relating exclusively to Scotland, be referred to the Scottish Grand Committee for its consideration.—[Mr. Neubert .]

Lead in Paint

Mr. Austin Mitchell: I beg to move,
That leave be given to bring in a Bill to require that all paint sold for use on private residential accommodation, or for public institutions where people gather, shall contain less than 600 parts per million of lead in the dry film; that all cans of new paint shall clearly indicate their lead level and all cans containing more than 600 parts per million bear a conspicuous health warning and information on statutory restrictions on use; that all consignments of paint to retail outlets shall contain advice and guidance to customers; that all advertising and publicity shall contain information on lead levels and health warnings; and that all sales to the general public of paints with high lead content shall be prohibited.
The Bill is based on the simple proposition that lead is toxic; in another word, it is poison. It accumulates in the body and the environment and that accumulation is correlated with reduced IQ in children. Thus it is our duty to reduce emissions of lead into the environment from whatever source, including petrol, water pipes or paint. The ninth report of the Royal Commission on Environmental Pollution of April 1983 reporte:
We do not know of any other toxic substance which is both so widely distributed in human and animal populations and present at concentrations greater even than one tenth of those at which frank symptoms may occur. We consider this reason enough to seek to reduce the exposure of the general population to lead".
It continue:
We consider that the safety margin between the blood lead concentration in the general population and those at which adverse effects have been proven is too small, particularly in view of the great variation in the response of individuals to lead.
It is our view that it would be prudent to take steps to increase the safety margin of the population as a whole. When this is viewed against the background of the universal occurrence of lead and of its accumulation in the environment … we are convinced that it would be prudent to reduce further its anthropogenic dispersal and man's exposure to it and we so recommend.
That is the aim of the Bill. I am following the Royal Commission's recommendation that Government and manufacturers should work towards reducing the maximum permitted concentration of lead in paint for household use to 600 parts per million, which is the maximum level permitted in the United States in paint which is accessible to children under the Lead Based Paint Poisoning Prevention Act. I should very much have preferred voluntary self-regulation by the industry and the industry to do the job rather than the House to do it. I should have preferred the industry to set its house in order, but it has not done so.
The Campaign for Lead-Free Air has purchased and analysed new paints. Its research shows that 67 per cent. of the primer paints that it purchased had more than 600 parts per million of lead. The analysis ranged from Dulux Universal, which was effectively lead-free, to Berger All-Purpose, with more than 7,000 parts per million of lead. Seventy two per cent. of undercoats had more than 600 parts per million of lead. Eighty six per cent. of glosses had more than 600 parts per million of lead. The survey ranged from Decco Super Liquid, which was effectively lead-free, to Dulux Pure Brilliant White with 11 times the level I recommend. One hundred per cent. of varnishes had more than 600 parts per million of lead.
That proves two things. First, lead is not necessary, even as a drying agent, as the manufacturers claim. Some


paints low in lead dry as well as others. Secondly, the public has no idea about what it is getting inside a can of paint.
Another point that emerged from the study by the Campaign for Lead-Free Air was that shops did not know about either the lead content of the paint they were selling or the dangers associated with it. The manufacturers have compounded the problem by misleading labelling. Some paints are labelled "lead-free" when they contain lead; others are labelled "non-poisonous", even though they contain comparatively high levels of lead; and others are labelled "contains no lead pigment" when the paint contains more than 7,000 parts per million of lead—for drying purposes. As a final insult to our intelligence, the manufacturers have said:
the addition of lead level information would in our firm view not add helpfully to anyone's knowledge".
Of course, it would
add helpfully to anyone's knowledge
because it would allow the consumer to know whether the paint was safe for his purpose. That is a vital part of consumer information.
In the light of that response and behaviour pattern by manufacturers, I have reluctantly introduced this Bill to show them the way in which they should go. Under the Bill, all paint that is sold for use in or on private residential accommodation or for public institutions where people gather, such as hospitals and schools, should contain less than 600 parts per million of lead in the dry film. Manufacturers will be asked to label in categories all cans of paint according to the lead level of the paint. Cans containing more than 600 parts per million of lead in the paint will have to carry a conspicuous health warning and information about the restrictions in the use of the paint. The Bill will provide for all consignments of paint to retail outlets to contain advice and information for customers on lead levels. The Bill will prohibit the sale to the general public of high lead content paints.
I commend the Bill to the House, just as I commend the efforts of the Campaign for Lead-Free Air in highlighting, researching and effectively campaigning on this problem.
Mr. Vernon Hook, the director of the environmental health services division of the American Centre for Disease Control, made a telling argument when he said:
We need neither formulae nor mathematical models to project increased exposure in coming years if lead is permitted to be used in residential paints.
Every toddler is observed to have hand to mouth activity. Lead in paint undoubtedly contributes markedly to the lead content of dust around the house … We believe that 0·06 per cent. lead offers a margin of safety to the child, is achievable, enforcable, measurable and reasonable".
So do I, and I believe also that in focusing on the comparatively rare problem of acute lead poisoning from paint, such as that caused by children eating or drinking substantial quantities of paint, the manufacturers have sought to avoid discussion of the real issue. The issue involves the low-level effects of lead on mental health and, above all, the fact that any lead added to the over-large quantity of lead already in the environment increases the quantity to levels which are unacceptable in the bodies of many children and contributes to the environmental buildup of this non-degradable neurotoxin. I urge the House to act.

Question put and agreed to.

Bill ordered to be brought in by Mr. Austin Mitchell, Mr. David Alton, Mr. Alfred Dubs, Mr. Simon Hughes, Mr. Charles Irving, Mr. Jeff Rooker and Mr. Martin Stevens.

LEAD IN PAINT

Mr. Austin Mitchell accordingly presented a Bill to require that all paint sold for use on private residential accommodation, or for public institutions where people gather shall contain less than 600 parts per million of lead in the dry film; that all cans of new paint shall clearly indicate their lead level and all cans containing more than 600 parts per million bear a conspicuous health warning and information on statutory restrictions on use; that all consignments of paint to retail outlets shall contain advice and guidance to customers; that all advertising and publicity shall contain information on lead levels and health warnings; and that all sales to the general public of paints with high lead content shall be prohibited; and the same was read the First time; and ordered to be read a Second time upon Friday 26 October and to be printed. [Bill 213.]

Finance (No. 2) Bill (Amendments)

Mr. Robin Maxwell-Hyslop: On a point of order, Mr. Speaker. You were good enough to place in the No Lobby your provisional selection of amendments on the Finance (No. 2) Bill. It is unfortunate that, although yesterday I handed in to the Public Bill Office an accurate, carefully .typed — not scribbled on the back of an envelope — important new clause, it has appeared on page 2295 of the notice paper in a form so garbled that you could not have selected it. It is a starred amendment, because it concerns a declaratory new clause which would put income tax or capital gains tax outside the outgoers' scheme payments which are to be made by the Minister of Agriculture, Fisheries and Food to those milk producers who have to leave milk production because of the imposition of the quota scheme.
I could not sensibly table such a new clause until I knew whether my right hon. Friend would make those payments tax exempt. I sat through the debate on the draft regulations, and was not called because more hon. Members sought to catch your eye, Mr. Speaker, than you could call. I immediately wrote to my right hon. Friend asking him to give tax exempt status to payments under the outgoers' scheme. Because by yesterday I had received no reply from the Minister—the reply came by messenger only at midday today—I waited as late as I reasonably could before handing in the important new clause.
I handed in the new clause in the following form:
Outgoers' Scheme
Mr. Robin Maxwell-Hyslop
To move the following Clause:—
'Monies paid by the Minister of Agriculture, Fisheries and Food under the "Outgoers' Scheme" announced on 25th May 1984 to registered milk producers who enter into an agreement with the Minister pursuant to that scheme shall not be liable for income tax or capital gains tax.'.
The word "or" has been omitted by the printer; a bracket has been placed after the word "Scheme" and the word "Outgoers" in the heading has been put in the singular. All those details were correct in the typed form that I handed in. I am not surprised, Mr. Speaker, that, because of the form in which the new clause appears on the notice paper, you felt unable to select it. However, it is such a crucial new clause to a large, number of people whose livelihood is affected that I would, with the greatest respect, in view of the misprints, ask you, Mr. Speaker, whether you would be good enough to include it in your actual as opposed to provisional selection of amendments.

Sir Peter Mills: I strongly support my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop). He showed me the typed piece of paper with the new clause on it before he tabled it. I support him fully .

Mr. Speaker: Order. I was concerned not so much with the way in which the new clause was presented, but with the fact that it was starred, which caused me not to select it. However, in view of what the hon. Members for Tiverton (Mr. Maxwell-Hyslop) and for Torridge and Devon, West (Sir. P. Mills) have said, I shall look into the matter. I shall make an announcement later.

Mr. Maxwell-Hyslop: I am most grateful, Mr. Speaker.

Ways and Means

VALUE ADDED TAX: INTERESTS IN RECONSTRUCTED PROTECTED BUILDINGS

Motion made, and Question proposed,
That, notwithstanding the Resolution (Amendment of the law) of 19th March, in relation to a building which is—
(a) a listed building, within the meaning of—
(i) the Town and Country Planning Act 1971, or
(ii) the Town and Country Planning (Scotland) Act 1972, or
(iii) the Planning (Northern Ireland) Order 1972, or
(b) a scheduled monument, within the meaning of—
(i) the Ancient Monuments and Archaeological Areas Act 1979, or
(ii) the Historic Monuments Act (Northern Ireland) 1971,
provision may be made for zero-rating the granting, by a person carrying out certain works of reconstruction in relation to the building, of a major interest in, or in any part of, the building or its site; and in this Resolution 'major interest' has the same meaning as in the Value Added Tax Act 1983. — [Mr. Neubert.]

Mr. A. J. Beith: On a point of order, Mr. Speaker.
It would be helpful if the Minister could explain to the House the precise import of the Ways and Means resolution. I believe that it is part and parcel of an important and valuable Government concession relating to historic buildings. We should make sure that that concession applies in some complicated circumstances that could arise. Without the concession, the weight of the ludicrous imposition of value added tax on building works would have applied to the historic buildings that the Government are trying to preserve.
Later tonight we shall see whether, at this eleventh hour, we can persuade the Government to extend the concession to other related matters, such as buildings in conservation areas, schools, community buildings, and so on. It would be helpful if the Minister could tell us precisely what the Ways and Means resolution does. I hope that it makes the concession, which I welcome, more effective.

The Minister of State, Treasury (Mr. Barney Hayhoe): The amendment of the law resolution, which was approved on 19 March, does not allow the making of
any amendment with respect to value added tax so as to provide (a) for zero-rating or exempting any supply".
In other words, the resolution does not allow any amendments designed to introduce any new zero ratings. The Government have proposed a concession for listed buildings, on which I gave a commitment in Committee, and it was referred to by the hon. Member for Berwick-upon-Tweed (Mr. Beith).
Item 2 of the group provides for the zero rating of any approved alteration. However, that does not represent a completely new zero rating. It is a limited return to the pre-budget zero rating for alterations and does not fall foul of the amendment of the law resolution. However, I am advised that in strict legal terms item 1 proposes a new relief. The previous relief for the grant of a major interest by a builder or developer substantially reconstucting a building was an administrative—possibly generous—interpretation of the item 1 relief in group 8 for a person constructing a new building. As item 1 of group 8A represents, strictly speaking, a new zero rating for the sale or long lease of a building by a person who has carried out


certain works of reconstruction to it, such an amendment to the law cannot be made without the Ways and Means resolution.
Therefore, this procedural resolution is required to give full effect to the commitment that I gave in Committee and is reflected in the amendments before the House.

Mr. D. N. Campbell-Savours: On a point of order, Mr. Speaker.
I, too, would like to raise a matter in relation to the Ways and Means resolution because I found that I could not table an amendment, which I have discussed privately with Ministers, on exemption from value added tax for mountaineering equipment.
Could we be told why it is necessary for the Government to table the Ways and Means resolution? As the Chair has discretion to select amendments, you, Mr.

Speaker, could decide what debates could take place on VAT. Does that not adequately protect the Government in so far as there would not be an abuse of the Order Paper by the tabling of innumerable amendments on VAT? On this occasion—it may be the custom and practice of the House—it seems that we are being confined to debating areas that are acceptable to the Government, when many of us would have sought to table amendments that were far more in tune with the desires and requirements of our constituents. Surely we are here in the House of Commons to protect their interests, not the Government's interests.

Mr. Speaker: Order. That is not a matter for me. I can select amendments only in accordance with the money resolution. For the reasons that have been mentioned, it has been necessary to move a further Ways and Means resolution in respect of this matter.

Question put and agreed to.

Orders of the Day — Finance (No. 2) Bill

As amended (in Committee and in the Standing Committee), considered.

Ordered,
That the Finance (No. 2) Bill, as amended, be considered in the following order, namely, New Clauses, amendments relating to Clause 1, Schedule 1, Clauses 2 to 4, Schedule 2, Clauses 5 to 7, Schedule 3, Clause 8, Schedule 4, Clause 9, Schedule 5, Clause 10, Schedule 6, Clauses 11 to 17, Schedule 7, Clauses 18 to 27, Schedule 8, Clauses 28 to 36, Schedule 9, Clauses 37 and 38, Schedule 10, Clauses 39 to 49, Schedule 11, Clauses 50 to 57, Schedule 12, Clauses 58 to 62, Schedule 13, Clauses 63 to 68, Schedule 14, Clauses 69 to 74, Schedule 15, Clauses 75 to 81, Schedule 17, Clauses 82 to 84, Schedule 16, Clauses 85 to 87, Schedule 18, Clauses 88 to 93, Schedule 19, Clause 94, Schedule 20, Clauses 95 to 105, Schedule 21, Clauses 106 to 124. Schedule 22, Clause 125, New Schedules and amendments relating to Schedule 23.—[Mr. Cope.]

New Clause 19

CAPITAL TRANSFER TAX: RELIEF FOR STUD FARMS

`(1) For the purposes of Schedule 14 to the Finance Act 1981 (capital transfer tax: relief for agricultural property) the breeding and rearing of horses on a stud farm and the grazing of horses in connection with those activities shall be taken to be agriculture and any buildings used in connection with those activities to be farm buildings.

(2) In paragraph 12 of Schedule 10 to the Finance Act 1975 (farm cottages) the existing provisions shall become sub-paragraph (1) and at the end there shall be inserted—
(2) Expressions used in sub-paragraphs (1) above and in Schedule 14 to the Finance Act 1981 have the same meaning in that sub-paragraph as in that Schedule.

(3) In section 97 of the Finance Act 1981 (grant of tenancies of agricultural property) for subsection (2) there shall be substituted—
(2) Expressions used in subsection (1) above and in Schedule 14 to this Act have the same meaning in that subsection as in that Schedule.

(4) This section has effect in relation to transfers of value and other events occurring on or after 10th March 1981.'.—[Mr. Moore.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mr. John Moore): I beg to move, That the clause be read a Second time.
The Government have decided to table the new clause in the light of representations received from a wide range of equestrian interests. Discussions have taken place in recent months with the Joint Horse and Pony Taxation Committee, which represents many of those interests. The discussions followed talks held last year with the all-party racing committee—[interruption.] Later I shall cover the point raised by the hon. Member for Workington (Mr. Campbell-Savours) from a sedentary position.
The object of the new clause is to remove any doubt that capital transfer tax agricultural relief is available to stud farmers. It will remove uncertainties and allay concern in the bloodstock industry. Action is being taken for the following reasons. The bloodstock industry is a long-established and important part of the nation's heritage as well as a valuable part of our economy. It is estimated that export sales of equine livestock — I stress the words

"export sales"—thoroughbreds and other show jumpers exceed £100 million per annum. It is therefore important to ensure that the industry continues to thrive. In turn, a healthy breeding industry helps to ensure a thriving racing industry that gives pleasure and enjoyment to millions as well as providing jobs — I am sure that this is of relevance to hon. Members on both sides of the House —for an estimated 150,000—

Mr. D. N. Campbell-Savours: rose—

Mr. Moore: I shall not give way until I have completed more than one or two sentences. We are no longer in Committee.
An estimated 150,000 to 200,000 people are currently employed in equestrian industries. I am sure that hon. Members on both sides of the House will agree with this point. We should not overlook the sizeable sum contributed to the Exchequer by the racing industry in the form of betting levy.

Mr. Campbell-Savours: Does the Minister accept that in putting this matter to the House he must justify an additional concession being given to this industry as against other industries? He must prove that it deserves more of a concession than, for example, a manufacturer of nuts and bolts in Manchester. That is what the Minister must argue. Will he address himself to that matter?

Mr. Moore: If the hon. Gentleman, with his usual tolerant patience, gives me the opportunity, I shall seek to do precisely that.
As I started to say, and as my hon. Friends will have already noticed, the new clause seeks to remove any doubt. There is no concession. The clause represents the removal of doubt and the creation of certainty. My hon. Friends will have heard what I said about jobs and the revenue that the Exchequer receives from this important part of industry in Britain.
Bloodstock breeding is an extremely competitive international activity. Many of this country's competitors receive direct assistance from central Government, for example, low and nil rates of VAT in France and Ireland respectively, while stud farmers in Ireland are also entitled to agricultural relief from capital acquisitions tax, which is Ireland's equivalent of our capital transfer tax.
Therefore, it is important to ensure that our industry is not placed at a serious competitive disadvantage. Stud farming enterprises qualify for agricultural relief under the estate duty rules that preceded CTT.
The rules for capital transfer tax are different from those for estate duty and lay greater stress on the purpose for which agricultural property is occupied. The significance of this for stud farmers was not debated by Parliament in 1975 when capital transfer tax was introduced. Had the matter been appreciated then, relief might have been expressly provided at that time.
Agricultural relief is already given for some stud farming activities—for example, when the activities are ancillary to general farming. Inland Revenue practice is generally to look at the operation as a whole, with the result that relief is given, but there is no satisfactory reason why relief should be excluded if the enterprise is engaged solely in stud farming activities. Until recently—this is the key point—it was widely assumed that stud farmers were entitled to the relief, but the matter has not been


tested to any great extent because stud farmers can usually claim business relief, which is broadly comparable with agricultural relief.
Although business relief is generally available as an alternative, usually at the same rate of 50 per cent., it will not always be available as a fallback because it is available only on the disposal of a business or an interest in a business but not the individual assets of a business. Agricultural relief, by contrast, is more flexible and is available on the disposal of part of a farm. If the owner of land uses it for a stud business in partnership with others, business relief at 30 per cent. would be available in respect of that land, but agricultural relief might be 50 per cent., depending on the terms of the arrangement.
People in the industry argue that there is less certainty about the availability of business relief because, unlike agricultural relief, there is a qualifying condition that the activity must be carried on for gain. Although the Inland Revenue recognises the long-term nature of stud farming activities and does not interpret this to mean that a stud farm must be profitable from the outset, stud farmers may experience anxiety and uncertainty as to whether the condition could be invoked in certain cases. That uncertainty can restrict investment and development in the industry. The object of the new clause is to provide relief for proper stud farming establishments. It includes the words "stud farm" as a means of excluding hobby owners whose horse breeding is incidental to their ownership of the animals or who keep or graze horses on just a few acres of land around their houses.
The significance of the change in the law in 1975 was fully recognised comparatively recently and for the past 12 months or so there have been discussions with representatives of the industry on the need for remedial legislation.

Mr. Campbell-Savours: It is not an industry. The Minister should not misuse the word.

Mr. Moore: I appreciate that some Opposition Members have difficulty in reconciling themselves with the diversity of industry in this country, but however much some of them despise this industry they should appreciate that 150,000 or 200,000 citizens are employed in activities related to it. I am sure that most Opposition Members appreciate that.
Stud farmers' entitlement to relief has not been tested in the courts and it is possible that relief would be held to be available in any event. The central problem, however, is the uncertainty of the present law, which would remain for as long as it took to complete the legal process, which might be a considerable time if the matter was taken further by whichever party was, unsuccessful at the court of first hearing. In the circumstances, therefore, the Government consider it appropriate to act now to ensure the continued stability of the industry.
The cost should be neglible because, notwithstanding the uncertainties expressed by the bloodstock industry, the majority of stud farming enterprises should qualify for business relief at the same 50 per cent. as agricultural relief.
The new clause is a modest measure to remove uncertainty in an industry of considerable importance to large parts of the country. I commend it to the House.

Mr. Jeff Rooker: In the light of events outside and as the Government now face their biggest financial crisis since 1979, the fact that the first item in the Report stage of the Finance Bill relates to a capital transfer tax concession for stud farmers is likely to be grossly misunderstood outside the House. I accept that there are procedural reasons for this which are not entirely of the Government's making, but people outside are liable to take a dim view of our priorities.
The Minister says that the cost will be negligible. In Treasury parlance, that means less than £1 million. That is peanuts compared with the turnover of the industry, so why bother with the new clause at all? As for the argument about the 150,000 or 200,000 jobs, if the Treasury cannot be accurate to within one third of the number of jobs in the industry, I see no need for the provision.
The Minister said that discussions had gone on for a year. If that is so, one wonders why the provision was not included in the Bill in the first place. He said that there had been many representations. That is news to me. He mentioned only one organisation, the Joint Horse and Pony Taxation Committee—of what organisation, I do not know.

Mr. Moore: And the all-party racing committee.

Mr. Rooker: If that body is behind this, I am certainly suspicious about it. Did any other organisation press for such a concession?

Mr. Moore: The Joint Horse and Pony Taxation Committee represents the Thoroughbred Breeders Association, the British Horse Society, the National Farmers Union, the Horse Racing Advisory Council and the National Light Breeders Society.

Mr. Rooker: I am grateful to the Minister for putting that on record. I wonder whether the parties seeking the concession raised the subject of advances in breeding technology. We understand that thoroughbreds may soon be cloned, so the industry may not be in its present form much longer. That has been a matter of public comment in recent weeks, so we may not be passing our time very usefully on this.
In view of the Minister's comments, I am astonished that the skilled eagle eye of the present Chief Secretary did not spot this when he was trying to wreck the introduction of capital transfer tax in 1975. I have gone back over those debates in recent weeks. The issue was never raised. I am surprised that the skill of the Chief Secretary was found wanting in those days.
I also wonder whether the tax has actually been paid. The Minister says that the matter has not been tested in the courts. Is that because stud farm owners have been paying what they regard as their lawful taxes?

Mr. Charles Morrison: The hon. Gentleman cast aspersions on the behaviour of my right hon. and learned Friend the Chief Secretary in 1975. He should be aware that the issue did not arise until 1981 as a result of a change of practice by the Capital Taxes Office. Until 1981 the situation was as it had been since 1933.

Mr. Rooker: That is fair enough. If there was a carryover from estate duty to capital transfer tax I am amazed that this matter was not raised by the present Chief


Secretary when he was casting his skilled eagle eye over the legislation in 1975 and trying to wreck the introduction of a proper capital tax transfer regime.
5 Pm
This matter was not raised in Committee. It is new to the House. We need to know more about why we are being asked to make this further concession— a concession which, we are told, is not worth very much. The sum involved is less than £1 million. I cannot see what the industry is complaining about.
I am not attacking the jobs in the industry. If, every time we argued for or against a certain tax, someone said that the industry concerned employed 10,000 or 1 million people, we would find it hard to form a proper taxation policy. The effect of capital transfer tax on the jobs, if it is levied, might be questioned. The Minister did not say that if it was levied in a certain way, so many jobs would be lost. He only said that there are 150,000 or 200,000 jobs in the industry.
Before I ask my hon. Friends to support the new clause, the Financial Secretary must give a more substantive reason for using the time of the House to ask for a concession for this stratum of society.

Sir John Farr: I fully support the new clause. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) says that people will misunderstand the new clause. That is an argument that we often hear. It generally means that the hon. Member who uses it has no good reason for opposing the clause.
If the new clause were not introduced, our action would certainly be misunderstood in the country because, in addition to the fact that the bloodstock industry employs nearly 200,000 people, there is an additional advantage to the nation which my hon. Friend did not mention. The industry is a massive overseas export earner, and that is good for Britain. British bloodstock and blood lines are continually sought overseas. We must keep our bloodstock farms competitive and not put them at a disadvantage to others overseas. My hon. Friend has said that they are at a disadvantage compared with Ireland, for instance, where the competing bloodstock farms enjoy tax rights similar to those proposed.
I cannot imagine that the Opposition Front Bench will oppose this simple new clause. We are seeking only to put our own industry on a par with foreign competitors.
Is my hon. Friend satisfied that we have an adequate definition of the term "stud farm"? Stud fanning is an activity concerned with breeding horses, but a stud farm in Britain can be viable and commercial without the presence of a stallion at the stud. Many of the commercial stud farms send their mares to visit stallions around the country. Can my hon. Friend confirm that professional stud farms which are engaged in breeding horses but do not have resident stallions will benefit from the concession?

Dr. John Marek: I, too should like to refer to the remarks made by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker). I am surprised that the new clause is brought in on Report, when it is less than two weeks since we were talking about new clauses in Committee. if discussions have been in progress for the past few weeks or months, why could the Government not bring the measure before the Committee? We could then have given it due consideration and, if necessary, reconsidered it on Report.
I hope that the Government will not make any excuses for this, because there are two or three more similar new clauses that the Chancellor of the Exchequer—who is not present—or the Financial Secretary to the Treasury will move in due course. It must be more conducive to good government if new clauses—this is not just, an amendment; it is a new clause to a major Bill—are tabled in Committee rather than at this late stage.
The Minister says that the industry is important and valuable and that he wishes it to remain competitive and to continue to be one of our major industries. I wish that he had said the same thing about some other groups which we discussed in Committee, such as the seafarers, who are to lose their concession. Seafaring used to he a very important industry, but the concession there has been cut. What is the difference? Why has the hon. Gentleman refused to allow that concession to remain, when in the case of stud farms, as soon as he realises that there is some doubt about the existence of a concession, he falls over backwards to ensure that it shall be retained?
I hope that merchant seamen will realise what has happened here today and will note the distinction that the Government draw between them and the owners of stud farms. I do not know of any stud farm owners who are impoverished or who are looking for the next shilling to enable them to keep their businesses going.
What has happened to the Treasury's view of the desirability of a simple, straightforward taxation system without any concessions for special cases? Time and again in Committee Ministers told us that they wanted a simple, straightforward taxation system, without exceptions for particular areas. Yet the Treasury is now creating another exception. Stud farms are not a form of agriculture, but they are to benefit from a concession as if they were. If the Treasury were consistent, it would have refused to grant the concession. We are told that is only a very small concession. The Treasury should have said that it would not allow ever a chink to appear in its grand strategy—with which basically I agree — of ensuring that our taxation system is straightforward and contains as few exceptions as possible.
The representatives of organisations who have written to the Minister have not written to me, and I do not think that they wrote to any of my hon. Friends either. Why not? There has been some form of back-door consultation with the Government. Some hon. Members have been favoured with representations from interested bodies, but others have not. I should have liked to hear from some of those organisations. They might have persuaded me that they had a case. At the moment, in the absence of information and from what I know of the industry, I am not persuaded.
It is no use saying that there are hundreds of thousands of jobs in the industry. They are among the worst paid jobs in the country. If one wants to find a badly paid job, one should look at the stud farms and associated areas. The more profit that industry makes, the less, in real terms, it pays its employees.
I wish to be brief. Yet again, the Government are giving a concession to the rich, who do not need it, and taking away a tax concession from people, like seafarers, who can ill afford to lose it. They are imposing burdens on those who cannot afford them, such as those who buy fish and chips to take away. I intend to vote against the new clause.

Mr.charles Morrison: I am sorry that the Opposition Members who have spoken should be more concerned about scoring petty political points than dealing with the facts. It might be said that, as new clause 19 is concerned to a considerable extent, though not entirely, with the future of the sport and the industry of racing, they are demonstrating the attitude of killjoys towards the sport and, in regard to the industry, they are demonstrating the not unusual attitude of the Labour party that there should be equality of misery. Just because the Government are unable to give a concession to every industry does not mean that they should not give it to some. However, this is nothing to do with a concession — it is merely confirmation. As I have already said to the hon. Member for Birmingham, Perry Barr (Mr. Rooker), new clause 19 confirms what appertained in regard to capital taxation on studs from 1973 to 1981.
I thank my hon. Friend the Financial Secretary for introducing new clause 19. He was kind enough to mention the work of the Joint Horse and Pony Taxation Committee and that of the all-party racing committee, on which several Labour Members and some Liberal Members serve and who demonstrate far more good sense than has come from Labour Members today.
What appertained prior to new clause 19 being tabled is a perfect example of government working at its best. I might go so far as to say that what has happened is a lesson for other Departments. First, the Government, via the Capital Taxes Office, took a view about the application of capital transfer tax to studs. That view, which was expressed in 1981, was challenged by a variety of interested parties. Initially, the Government stuck to their line, but agreed to meet those who objected. Meetings then took place and the Government recognised the strength of the arguments of the objectors. As a result, new clause 19 is on the Amendment Paper.
New clause 19 is not a concession as it no more than confirms the interpretation of legislation, which was confirmed by the courts in 1933, that was accepted until 1981. That interpretation of the law has helped to maintain a reasonable level of horse breeding of all types in Britain.
Two points should be borne in mind in regard to thoroughbred horses. First, and contrary to some popular assumptions, thoroughbred breeding is not generally a very profitable occupation. [HON. MEMBERS: "Ah."] I might have guessed such a response. We occasionally read in the newspapers of a yearling achieving an incredible price. Such yearlings are not run-of-the-mill; they are exceptions. It now costs about £8,000 to rear and keep a horse until it reaches the yearling sales, when it is probably about 18 months old. Huge numbers of horses at the yearling sales do not reach anything like that price.
Opposition Members should not forget that racing and breeding are international. If the tax environment in Britain is not comparable to that in other countries, such as Ireland, France and the United States, breeders will move their businesses to those countries. If that happens, there will be a major and adverse effect on the level of bloodstock exports from Britain. Moreover, the quality of British racing and the level of employment, which I imagine is of greatest importance to Opposition Members, will be seriously affected.
5.15 pm
My hon. Friend said that new clause 19 has been tabled because he recognises the strength of those points. I repeat

my thanks and those of people who rear and breed horses —employers and employees—to my hon. Friend and the Government for introducing the new clause.

Mr. John Maxton: I remember, when I was first elected to the House in 1979, listening in my first Finance Bill debate to almost exactly the same speech as that which the hon. Member for Devizes (Mr. Morrison) has just made. There was a substantial lobby which wanted its new Government to give VAT relief to the racehorse industry, as is the case in Ireland and France. If I remember rightly, no concessions were made. As far as I am aware, there has been no dramatic drop in the activity of the racing industry as a result of the Government's failure to give VAT relief. The hon. Member for Bury St. Edmunds (Mr. Griffiths) is either nodding or shaking his head. If he is trying to indicate that the industry has been harmed, perhaps he will be able to tell us about it later.
If the Government are introducing new clause 19 merely to tidy things up, why did they not do that when the Bill was first drafted or in Committee? We could have had a lengthy debate in Committee and have had an opportunity to make further points on Report and to table amendments, if necessary. If new clause 19 were a tidying up measure, one would have assumed that it would have followed court decisions. I gather that that is not the case. I am surprised that the Minister has not suggested that the matter be left for the courts to interpret so that we can see what interpretation is made with a view to introducing legislation if necessary.
I do not understand why this leisure industry should have been selected for relief when other leisure industries receive no such benefit. I agree that we are discussing an international business that employs many people but it is still a leisure industry. It is designed to give people pleasure, whether from watching racing or from betting. Nobody disapproves of that. The idea that the Opposition disapprove is wrong, but we do not think it right that such an industry should get the same relief as the vital industry of farming which provides a basic necessity—food. I ask the Minister whether the same relief will extend to those who breed greyhounds and who keep and breed pedigree dogs. Will greyhound breeders be exempt, will breeders of pedigree dogs get relief, because they have kennels to maintain? This is an important industry. It may not employ people in large numbers, but it is an international business that sells high-quality animals abroad.
What about the racing car industry, which also uses the term "stables"? This, too, is an important international industry. The racing car industry would claim that it is the testing ground for the motor car industry. Many improvements have taken place in the motor car industry as the result of experimentation in the racing car industry. Indeed, this industry is normally in greater financial difficulty than the horse racing business. I agree that it does not have the same gambling element, but it provides the same leisure activity in that spectators watch people racing against each other just as they do in the horse racing industry. Why is relief not given to this industry, to the tourist industry, to bingo halls and to all leisure industries?

Mr. John Home Robertson: And to pigeons.

Mr. Maxton: My hon. Friend the Member for East Lothian (Mr. Home Robertson) keeps saying pigeons, but I am not convinced that a commercial pigeon industry exists.

Mr. Home Robertson: It does.

Mr. Maxton: My hon. Friend can make his speech on that matter and prove his point. I maintain that there is a large number of leisure industry activities, some of which are of an international nature, and many of which are large employers of labour, yet they do not receive these benefits. The clause appears to grant this benefit to one specific industry for one reason only. I know the constituency of the hon. Member for Devizes in which I am sure there is a fairly large number of racing stables. The Government have been subjected to a great deal of pressure by people who are well-heeled in the rural areas, yet they are not prepared to give the same benefits to other areas and industries, and this includes not only leisure industries but manufacturing industries. I therefore have grave reservations about the new clause.

Mr. Eldon Griffiths: I will not follow the hon. Member for Glasgow, Cathcart (Mr. Maxton) down the road to the pigeons.
With regard to greyhound racing, I was at White City last night—which, sadly, is to close—and was delighted to be informed that two Opposition Members are members of a syndicate running a greyhound. Unfortunately, the poor beast fell on its face, broke its groin and came in nowhere. Perhaps the Opposition can draw some moral from this.
To deal first with the point of the hon. Member about racing cars, if this is a business, it gets business relief. In the case of stud farming, all that is at issue is whether the doubt about agricultural relief that arose as a result of a decision by the Capital Taxes Office is a valid one. That is all that the new clause deals with.
I support it first because, with my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym), I represent the Newmarket area, where there are probably more racehorses, and certainly more studs, than anywhere else in the country. And I support it for the reasons put forward by the Minister when he introduced the new clause: jobs, exports, investment and revenue.
The jobs speak for themselves. Well over 100,000 people in one 'way or another are employed in the racing industry. If the studs are ruined, there will be no racehorses. It is as elementary as that. There was a risk that as a result of the capital tax decision confusion would arise, confidence would be impaired and the studs of this country would suffer. That would have an inevitable effect on a large number of jobs. I am surprised that the Opposition do not recognise that the jobs of a stable lad or of an apprentice or a person who manufactures the bits, bridles, blankets and leatherwork that go on to a horse are just an important to them as are the jobs of those who make goods for other industries. The new clause makes sense for jobs.

Mr. Maxton: Does the hon. Gentleman suggest that, if the new clause were not included in the Bill, all those jobs would be put at risk?

Mr. Griffiths: I am saying that doubt arose because of the interpretation that the Capital Taxes Office had placed upon the matter. As a result, the investment that is critical

for the future of studs in this country was placed in doubt. It is important that the Government remove that doubt so that investment will continue and the jobs that depend upon it will not be put at risk.
With regard to exports, my hon. Friend made the position clear. I invite the hon. Member for Cathcart, and, indeed, all Opposition Members, to come to the Newmarket sales and see how many people come from abroad each year and purchase bloodstock in this country, which assists our balance of payments and generates purchasing power, thus helping British jobs and sales abroad. The Opposition take a narrow view in suggesting that firms involved in producing food and manufacturing equipment for the racing industry are less important than those who manufacture goods in other industries.
There is also a notion abroad that anybody who has anything to do with the racing industry by definition is rich. I have a good deal to do with the racing industry in the sense that I have tried to represent it in Parliament for many years, but I am certainly not rich, any more than the vast majority of my constituents who are involved in the racing industry are rich.
The hon. Member for Cathcart fairly raised the point about the effect of VAT over the past seven or eight years. I do not blame this entirely for the fact that British bloodstock has been winning fewer of our British classics, although that is one factor. But bloodstock animals bred in this country have been fetching generally lower prices than those which are bred elsewhere. British-bred horses are earning less prize money, and many of our studs have gone out of business. This is not a rich man's industry.

Mr. Nicholas Budgen: Does my hon. Friend suggest that that has anything to do with the tax position under discussion? Is it not entirely dependent upon the fact that American blood is now fashionable?

Mr. Griffiths: I hope that my hon. Friend will allow me to reply to the points that have been made by the Opposition. The hon. Member for Wrexham (Dr. Marek) argued that the new clause is a concession to the rich and that, at the same time, racing is the most poorly paid of industries. He cannot have it both ways. Nor can my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen).
This is a sensible new clause that does nothing more than remove a doubt. It is astonishing that Opposition Members should oppose it. I am sure that the official Opposition will not go into the Division lobby, whatever their mavericks do, because if Labour officially opposes this it will simply make my majority in Newmarket even larger.

Mr. Campbell-Savours: The hon. Member for Bury St. Edmunds (Mr. Griffiths) in his justification for the new clause points to jobs. I put it to the hon. Gentleman that the movement of the pound on the London markets in the last two weeks will do far more for the export price of horses than the incentive arrangements that he believes attach themselves to the new clause will ever do. This tax concession will do nothing for the industry. All it will do is make a few people a lot richer.
I have no objection to the industry. I do not take any exception to it, as Conservative Members have suggested. On the contrary, I positively support it. But when Ministers come to the House and tell us of the need for tax


concessions to be granted, it is their job to prove to us that, as a result of that concession, there will be benefit to an industry that will be passed on as a greater benefit to the national economy. That case has not been put and it cannot be, because there is no case.
5.30 pm
The hon. Member for Devizes (Mr. Morrison) says that this concession shows the Government working at their best. They may be working at their best in the interests of a few, but in the interests of the overwhelming majority, who make up 99·99 recurring per cent. of the British population, this is the British Government working at their very worst. Half an hour before we began our debate, the House heard a statement from the Secretary of State for Education and Science on the youth service. In an intervention permitted to me by Mr. Speaker, I was able to put it to the Minister that this new clause is an indicator of the Government's priorities. They believe that they have a duty to secure the interests of those who do not need this money, while at the same time refusing additional resources for the youth service.
I have done a quick calculation, based on the figures that the Financial Secretary gave. If the concession in the new clause were to be allocated around every constituency, each one could have an additional £2,000, made available in the current financial year for youth clubs. In my constituency, £2,000 a year going into the local youth service would have a marked effect on the provision of equipment that could be used in the interests of young people. Instead, that money will be given to a few who happen to own stud farms.
I remember the debates that took place on the Finance Act 1981. I was sitting on the Committee with my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) when we discussed the amendments on grass letting. We were concerned about the abuses that would arise in the event that the capital transfer tax concessions on farming went through. My right hon. and hon. Friends predicted that if we granted these concessions, every year groups of interests would surface to claim that their activity was simply a variation on the word "farming", and would demand equal tax treatment with farmers.
Ministers justified their decision to introduce this tax concession on the basis that the farming industry is important because it is a food-producing industry and therefore central to the national economy. If that is the case, perhaps they can now explain how it is that the breeding of horses suddenly falls within the definition of a food-producing industry. Perhaps the Minister's intention is to convert the British to the French diet and arrange for us to eat horses. However, the Government have not produced an adequate definition to justify the introduction of this measure.
The small print in the new clause says that the concession is to be backdated to the introduction of the capital transfer tax concession in 1981. In other words, at that time it was not seen that this group would claim, but now that there is the potential anomaly the Government are ensuring that this group has the right to make a claim. It might be interesting to examine the accounts of some of these organisations. It may be that they have not settled their capital transfer tax liabilities from 1981 until today. I bet that, in the great majority of cases, these things are

still the subject of negotiations with the Inland Revenue. The delays and the arguments with the Inland Revenue, and perhaps even appeals, have led to the introduction of this tax concession today. Never, in the three years since the introduction of this concession, has one parliamentary question been tabled about the need for this tax concession for stud farms. That is a measure of the interest in it.
If the Government cannot point to clear and public representations being made on this concession, they have no right to introduce it. Let us not forget that this concession was not included in the original Finance Bill but has been introduced at a later stage, when the Bill has been through most of its proceedings in the House. It has been brought in only weeks before the Bill requires a signature to ensure its passage to the statute book.
The Government have not told us how many beneficiaries there will be. There may be only a couple of hundred individuals or organisations. These people are consuming a considerable amount of our parliamentary time, as well as national resources. I hope that the Minister addresses himself to that point and tells us how many will benefit from the concession.
I shall examine the consistency of the concession. Why is it that breeders of horses should be made a special case as against the interests of those who breed pheasants for the annual shoot, cat breeders, fish farmers—they may already have concessions—greyhound breeders, skunk and python breeders — we export those as well — and pigeon breeders? The whole thing is nonsense. We all know of examples of people who do not have access, as the hon. Member for Devizes has, to the privileged areas of the Treasury and Whitehall to make their case. I suspect, and I am sure that the hon. Member for Devizes will correct me if I am wrong, that he may have been at the heart of this new clause. He may have made repeated representations over the years to the Treasury. Perhaps if he catches your eye, Mr. Deputy Speaker, and is called later in our debate, he will be more forthcoming as to why he has sought to raise this matter on Report.
What we may do through the new clause is wrong. We cannot afford £1 million. There are far more deserving people and organisations within the United Kingdom requiring any money that the Treasury has available. The Minister has not made a case for the concession, and unless he can I earnestly hope that my hon. Friends will go into the Division Lobby on a point of principle—not against the industry, but to register our objection to the fact that money is being thrown away to organisations that simply do not need it.

Mr. John Maples: When the relief on capital transfer tax for agricultural land was introduced three reasons were given. One was the high rate of capital transfer tax at the time, the second was the high and unstable rate of inflation and the third was that it was, perhaps, the only way to allow family farms to pass from one generation to another. I have always found it difficult to see why farms should be treated differently from other assets for capital transfer tax purposes, and I find it difficult to see why stud farms should be treated differently.
I can see that if those conditions—the high rates of CTT and of inflation, and considerations of family farms — exist together, there would be some argument in favour of the exception, although its effect has been to


drive up the price of land, and not to relieve farmers from the effect of capital transfer tax. That is often the impact of tax concessions.
However, two of those conditions have gone or are on the way out. We have relatively low rates of inflation, and it seems that they will remain low for some time. Rates of capital transfer tax have been decreasing substantially.
The only remaining reason concerns family farms and how they should pass from one generation to the next. The tax penalty on that is relatively low. It is difficult to believe that the additional CTT relief granted by the new clause will preserve jobs, as some hon. Members have suggested. I cannot see how jobs will be destroyed when land is sold by one person's executors to another person.
Farming is in any case a highly privileged sector of the economy. As someone who has no horses or cows in his constituency, I am one of the few hon. Members who can say that. If we are looking for savings in the tax system we should examine the cost of those privileges.
I understand that the new clause simply restores the law to what everyone understood it to be before 1981. It seems reasonable to remove doubt. Does my hon. Friend think that it is reasonable for us to examine this sort of exemption? In other areas the Minister, beyond all others, has made it. Clear—I entirely agree with him—that the Government's policy is to remove exemptions and reduce rates of taxation. We have done that in corporation tax. I support that, as the theory is right.
Perhaps we are moving in the same direction in relation to income tax, with the removal of life assurance premium relief. That will enable the Treasury to reduce rates of tax. Perhaps the Minister will tell us why we seem to be going the other way in this case. If not, perhaps he will examine the exemptions from capital transfer tax before next year to see whether their removal would have the same effect as in the case of corporation tax, and reduce the rates of capital transfer tax.

Mr. Richard Holt: Much of the debate has centred on the racing industry. I wish not to join in that discussion, but to draw attention to the fact that without CTT there is a real possibility that show horses, especially Cleveland bays from my constituency, might be lost to the nation and to people in generations to come.
A capital transfer tax of this nature impinges not just upon the rich, but upon those farmers who enjoy and delight in breeding horses, and like to win against other farmers with the animals and produce that are exhibited at agricultural shows throughout the country.
Many people get great enjoyment from seeing young horses, such as Cleveland bays, being bred and shown, and going on to produce their own young horses for years to come. It is not a rich man's sport to own such animals. Often it is a poor man's sport. If farmers could not share grazing with others, they would not breed horses in the first place.
It is important that some Opposition Members should learn that there are people in this country who enjoy going racing and watching show horses. People will very much resent it if the new clause is lost. Many children today — and I hope many thousands in future — enjoy the excellent outdoor activity of pony riding. I do not find much vandalism and hooliganism among people who enjoy that sport.

Mr. Maxton: The hon. Gentleman is implying—luckily the hon. Member for Lewisham, West (Mr. Maples) is putting it right—that it is wrong to claim that large numbers of jobs in this industry will be wiped out if the new clause is not passed. At least three Conservative Members, including the hon. Gentleman, have implied that, if the new clause is not passed, the entire stud industry in Britain will collapse and many thousands of jobs will be lost. That is nonsense.

Mr. Holt: I am grateful to the hon. Gentleman for his intervention, because it shows that he will fail to convince the House of the value of his argument. I did not mention jobs. I suggested that thousands of children enjoy the pleasure of pony riding weekend in, weekend out. They do not cause trouble to anyone. Many schemes exist to promote riding for the disabled. All of that would be put at risk if the CTT concession before us were lost. [HON. MEMBERS: "Rubbish."] Opposition Members may shout "Rubbish", but none of them is involved in or enjoys the sport. They are not interested in young people doing nice things, only nasty things.
It is important that the House should not take seriously the hon. Gentleman's intervention. He has no argument against this modest measure. The fanning community throughout the country, as well as those who enjoy going racing or popping into betting shops, will resent the implication in the words of Opposition Members.

Mr. Moore: We have had a longer debate than some thought possible on this issue, which is of significance to the outside world. I know that I speak for my hon. Friends when I say that the words of my hon. Friend the Member for Langbaurgh (Mr. Holt) more accurately reflect his constituency interest, as he wisely said, and the interests of the young throughout the country than the attitude expressed by some outside the House, and the rather bitter language used earlier in the debate. It would be worthwhile to make known the attitude of Opposition Members to those who know more about the rural community than I do. I represent an urban seat.
I imagine that the hon. Member for Colne Valley (Mr. Wainwright) would say that there are some on the Opposition Benches who, by their silence, have signified their support for the new clause. I apologise for my presumption in suggesting that the alliance might have been excluded from that.
My hon. Friend the Member for Devizes (Mr. Morrison) has, to a significant degree, been representing the views of all parties to this issue by his leadership of the campaign to ensure that uncertainty is removed. We are talking not about a concession, but the removal of uncertainty from what is a complex area, as everyone knows who works on the CTT regime. To that extent, my hon. Friends the Members for Bury St. Edmunds (Mr. Griffiths) and for Devizes were right about the uncertainty in this large and important industry being significant. The new clause will remove that uncertainty and help an important sector of our economy.
The hon. Member for Birmingham, Perry Barr (Mr. Rooker) asked me specifically if there had been any cases so far. To the best of the Revenue's knowledge, no tax relief has yet been paid by a stud farm, as that has been covered by business relief at 50 per cent. It does not apply automatically to the cases that the hon. Gentleman asked me to consider. The clause is needed to avoid uncertainty.
The hon. Members for Wrexham (Dr. Marek), for Glasgow, Cathcart (Mr. Maxton) and for Perry Barr asked why the new clause was not introduced in Committee. I shall not bore the House with details of the new clauses that have been introduced at this stage in a Finance Bill in the past five or six years.
As I said earlier, the new clause was the subject of much discussion between myself, officials and the industry. We made sure that the clause was drafted to cover precisely the intended area. There is great difficulty in defining agricultural land use. Inevitably, our discussions took some time. That is why we were not able to introduce the new clause in Committee. That was unfortunate. I apologise, as it is better to discuss new clauses in Standing Committee.
My hon. Friend the Member for Harborough (Sir J. Farr) asked whether the definition of a stud farm was adequate. I shall consider that point. There is no limited definition of a stud farm in the Bill. A farm in the circumstances that my hon. Friend described would qualify for agricultural relief, subject to what I have said about the restraints on hobby activities.
The hon. Member for Cathcart asked whether greyhound breeders would be exempt. They would not be exempt but, where they were carrying on a business, they would qualify for business relief. That applies to commercial greyhound breeders, who would not qualify for the agricultural relief. There was some difficulty about interpretation of the definition of agriculture, as a result of the 1975 Act, which has created these difficulties. Greyhound breeders do not occupy land in the same way as stud farms.
Some Opposition Members have suggested that essentially the new clause seeks to help the wealthy. I stress that it does not.

Mr. Campbell-Savours: rose—

Mr. Moore: I shall give way in a moment.
It seemed to me that some Opposition Members were suggesting that the intention behind the new clause was to succour only the wealthy. I am seeking to answer that supposition.
The industry, like many others, undoubtedly includes some very wealthy individuals, but its bedrock comprises the many small breeders countrywide with a few acres and a handful of mares. The 1984 Directory of the Turf lists 700 thoroughbred studs in the United Kingdom and indicates the number of mares retained in about 400. Of that number, 77 per cent. have a dozen or fewer mares permanently on site, while 49 per cent. have six or fewer. That indicates the wide spread of the industry.
The hon. Member for Workington (Mr. Campbell-Savours) mentioned the list of breeders. I shall in correspondence address myself to each one, but, so far as I can see, they would qualify for business relief if they are carrying on a business. However, they do not generally occupy agricultural land for an agricultural purpose, and that is what relates to agricultural relief.
The hon. Member for Workington asked whether there had been any parliamentary pressure, and adduced from answers to parliamentary questions that there had not. I have received probably as many letters from Members on both sides of the House on this subject as on many other issues in the last year. I shall write to the hon. Gentleman

confirming the number of Members of Parliament who have written to me. In addition, the press which covers the industry has drawn to my attention that in the wider community this is a major issue. As an urban Member of Parliament, I was not familiar with it, but I am aware that it is an important issue for many people outside the House.

Mr. Campbell-Savours: The Minister has repeatedly said that the better off will not benefit. While this may not be a lot of money to hon. Members, it is certainly a lot of money to my constituents. Will he confirm that to benefit by way of this concession the value of the estate need be only £130,000?

Mr. Moore: As I have tried to explain, this is not a concession. It is confirmation of the pattern of taxation. However, in so far as it is a different interpretation from what people were led to believe, and given that some people may have been disadvantaged, there might be some negligible cost.
Business relief, at rates of up to 50 per cent., is available to all businesses, including the leisure industries to which the hon. Member for Cathcart referred. However, stock farming is in this special category and involves the occupation of agricultural land. That introduces the question of agricultural relief. The new clause overcomes the uncertainty about agricultural relief. That uncertainty will be removed by the new clause. I trust that the House will welcome it on that basis.

Question put, That the clause be read a Second time:—

The House divided: Ayes 350, Noes 172.

Division No. 400]
[5.54 pm


AYES


Adley, Robert
Budgen, Nick


Aitken, Jonathan
Bulmer, Esmond


Alexander, Richard
Burt, Alistair


Alison, Rt Hon Michael
Butcher, John


Ancram, Michael
Butterfill, John


Arnold, Tom
Carlile, Alexander (Montg'y)


Ashdown, Paddy
Carlisle, John (N Luton)


Aspinwall, Jack
Carlisle, Kenneth (Lincoln)


Atkins, Robert (South Ribble)
Carlisle, Rt Hon M. (W'ton S)


Atkinson, David (B'm'th E)
Carttiss, Michael


Baker, Nicholas (N Dorset)
Cartwright, John


Baldry, Anthony
Cash, William


Batiste, Spencer
Chalker, Mrs Lynda


Beaumont-Dark, Anthony
Chope, Christopher


Beith, A. J.
Churchill, W. S.


Bellingham, Henry
Clark, Dr Michael (Rochford)


Bendall, Vivian
Clark, Sir W. (Croydon S)


Benyon, William
Clarke, Rt Hon K. (Rushcliffe)


Best, Keith
Clegg, Sir Walter


Bevan, David Gilroy
Cockeram, Eric


Biffen, Rt Hon John
Colvin, Michael


Biggs-Davison, Sir John
Cope, John


Blaker, Rt Hon Sir Peter
Cormack, Patrick


Body, Richard
Corrie, John


Bonsor, Sir Nicholas
Couchman, James


Bottomley, Peter
Cranborne, Viscount


Bottomley, Mrs Virginia
Critchley, Julian


Bowden, A. (Brighton K'to'n)
Crouch, David


Boyson, Dr Rhodes
Currie, Mrs Edwina


Braine, Sir Bernard
Dickens, Geoffrey


Brandon-Bravo, Martin
Dicks, Terry


Bright, Graham
Dorrell, Stephen


Brinton, Tim
Douglas-Hamilton, Lord J.


Brittan, Rt Hon Leon
Dover, Den


Brooke, Hon Peter
Dunn, Robert


Browne, John
Durant, Tony


Bruinvels, Peter
Dykes, Hugh


Bryan, Sir Paul
Edwards, Rt Hon N. (P'broke)


Buchanan-Smith, Rt Hon A.
Eggar, Tim


Buck, Sir Antony
Evennett, David






Eyre, Sir Reginald
Jopling, Rt Hon Michael


Fairbairn, Nicholas
Joseph, Rt Hon Sir Keith


Fallon, Michael
Kellett-Bowman, Mrs Elaine


Farr, Sir John
Kennedy, Charles


Favell, Anthony
Kershaw, Sir Anthony


Fenner, Mrs Peggy
Key, Robert


Finsberg, Sir Geoffrey
King, Roger (B'ham N'field)


Fletcher, Alexander
Kirkwood, Archy


Forman, Nigel
Knight, Gregory (Derby N)


Forsyth, Michael (Stirling)
Knight, Mrs Jill (Edgbaston)


Forth, Eric
Knowles, Michael


Fowler, Rt Hon Norman
Knox, David


Fox, Marcus
Lang, Ian


Franks, Cecil
Latham, Michael


Freeman, Roger
Lawler, Geoffrey


Freud, Clement
Lawrence, Ivan


Fry, Peter
Lawson, Rt Hon Nigel


Gale, Roger
Lee, John (Pendle)


Galley, Roy
Leigh, Edward (Gainsbor'gh)


Gardiner, George (Reigate)
Lennox-Boyd, Hon Mark


Gardner, Sir Edward (Fylde)
Lester, Jim


Garel-Jones, Tristan
Lewis, Sir Kenneth (Stamf'd)


Glyn, Dr Alan
Lightbown, David


Goodhart, Sir Philip
Lilley, Peter


Goodlad, Alastair
Lloyd, Ian (Havant)


Gorst, John
Lloyd, Peter, (Fareham)


Gow, Ian
Lord, Michael


Gower, Sir Raymond
McCurley, Mrs Anna


Grant, Sir Anthony
Macfarlane, Neil


Greenway, Harry
MacGregor, John


Gregory, Conal
MacKay, Andrew (Berkshire)


Griffiths, E. (B'y St Edm'ds)
MacKay, John (Argyll &amp; Bute)


Griffiths, Peter (Portsm'th N)
Maclean, David John


Grist, Ian
Maclennan, Robert


Ground, Patrick
McNair-Wilson, P. (New F'st)


Gummer, John Selwyn
McQuarrie, Albert


Hamilton, Hon A. (Epsom)
Madel, David


Hamilton, Neil (Tatton)
Major, John


Hanley, Jeremy
Malins, Humfrey


Hannam, John
Malone, Gerald


Hargreaves, Kenneth
Maples, John


Harris, David
Marland, Paul


Harvey, Robert
Marshall, Michael (Arundel)


Haselhurst, Alan
Mates, Michael


Havers, Rt Hon Sir Michael
Maude, Hon Francis


Hawkins, C. (High Peak)
Mawhinney, Dr Brian


Hawkins, Sir Paul (SW N'folk)
Maxwell-Hyslop, Robin


Hawksley, Warren
Meadowcroft, Michael


Hayes, J.
Mellor, David


Hayhoe, Barney
Merchant, Piers


Hayward, Robert
Meyer, Sir Anthony


Heathcoat-Amory, David
Miller, Hal (B'grove)


Heddle, John
Mills, Iain (Meriden)


Henderson, Barry
Mills, Sir Peter (West Devon)


Heseltine, Rt Hon Michael
Miscampbell, Norman


Hickmet, Richard
Monro, Sir Hector


Hicks, Robert
Moore, John


Higgins, Rt Hon Terence L.
Morris, M. (N'hampton, S)


Hirst, Michael
Morrison, Hon C. (Devizes)


Hogg, Hon Douglas (Gr'th'm)
Morrison, Hon P. (Chester)


Holland, Sir Philip (Gedling)
Moynihan, Hon C.


Holt, Richard
Mudd, David


Hooson, Tom
Murphy, Christopher


Howarth, Alan (Stratf'd-on-A)
Neale, Gerrard


Howarth, Gerald (Cannock)
Needham, Richard


Howe, Rt Hon Sir Geoffrey
Nelson, Anthony


Howell, Rt Hon D. (G'ldford)
Neubert, Michael


Howell, Ralph (N Norfolk)
Newton, Tony


Hubbard-Miles, Peter
Nicholls, Patrick


Hughes, Simon (Southwark)
Norris, Steven


Hunt, David (Wirral)
Onslow, Cranley


Hunter, Andrew
Oppenheim, Philip


Irving, Charles
Ottaway, Richard


Jackson, Robert
Owen, Rt Hon Dr David


Jenkins, Rt Hon Roy (Hillh'd)
Page, Sir John (Harrow W)


Jessel, Toby
Parris, Matthew


Johnson-Smith, Sir Geoffrey
Patten, Christopher (Bath)


Johnston, Russell
Patten, John (Oxford)


Jones, Gwilym (Cardiff N)
Pattie, Geoffrey


Jones, Robert (W Herts)
Pawsey, James





Peacock, Mrs Elizabeth
Stewart, Andrew (Sherwood)


Pollock, Alexander
Stewart, Ian (N Hertf'dshire)


Porter, Barry
Stokes, John


Powell, Rt Hon J. E. (S Down,
Sumberg, David


Powell, William (Corby)
Tapsell, Peter


Powley, John
Taylor, John (Solihull)


Prentice, Rt Hon Reg
Taylor, Teddy (S'end E)


Price, Sir David
Tebbit, Rt Hon Norman


Prior, Rt Hon James
Temple-Morris, Peter


Proctor, K. Harvey
Terlezki, Stefan


Pym, Rt Hon Francis
Thatcher, Rt Hon Mrs M.


Raffan, Keith
Thomas, Rt Hon Peter


Rathbone, Tim
Thompson, Donald (Calder V)


Rees, Rt Hon Peter (Dover)
Thompson, Patrick (N'ich N)


Renton, Tim
Thornton, Malcolm


Rhodes James, Robert
Townend, John (Bridlington)


Rhys Williams, Sir Brandon
Townsend, Cyril D. (B'heath)


Ridley, Rt Hon Nicholas
Tracey, Richard


Ridsdale, Sir Julian
Trippier, David


Rifkind, Malcolm
Trotter, Neville


Rippon, Rt Hon Geoffrey
Twinn, Dr Ian


Roberts, Wyn (Conwy)
Vaughan, Sir Gerard


Robinson, Mark (N'port W)
Viggers, Peter


Roe, Mrs Marion
Waddington, David


Ross, Stephen (isle of Wight)
Wainwright, R.


Rossi, Sir Hugh
Wakeham, Rt Hon John


Rost, Peter
Waldegrave, Hon William


Rowe, Andrew
Walden, George


Rumbold, Mrs Angela
Walker, Bill (T'side N)


Ryder, Richard
Walker, Rt Hon P. (W'cester)


Sackville, Hon Thomas
Wall, Sir Patrick


Sainsbury, Hon Timothy
Waller, Gary


Sayeed, Jonathan
Walters, Dennis


Scott, Nicholas
Ward, John


Shaw, Giles (Pudsey)
Wardle, C. (Bexhill)


Shelton, William (Streatham)
Warren, Kenneth


Shepherd, Colin (Hereford)
Watson, John


Shepherd, Richard (Aldridge)
Watts, John


Silvester, Fred
Wells, Bowen (Hertford)


Sims, Roger
Wells, Sir John (Maidstone)


Skeet, T. H. H.
Wheeler, John


Smith, Tim (Beaconsfield)
Whitfield, John


Soames, Hon Nicholas
Whitney, Raymond


Speller, Tony
Wiggin, Jerry


Spence, John
Winterton, Mrs Ann


Spencer, Derek
Winterton, Nicholas


Spicer, Jim (W Dorset)
Wolfson, Mark


Spicer, Michael (S Worcs)
Wood, Timothy


Squire, Robin
Woodcock, Michael


Stanbrook, Ivor
Wrigglesworth, Ian


Stanley, John
Yeo, Tim


Steel, Rt Hon David
Young, Sir George (Acton)


Steen, Anthony
Younger, Rt Hon George


Stern, Michael



Stevens, Lewis (Nuneaton)
Tellers for the Ayes:


Stevens, Martin (Fulham)
Mr. Carol Mather and Mr. Robert Boscawen


Stewart, Allan (Eastwood)





NOES


Abse, Leo
Brown, R. (N'c'tle-u-Tyne N)


Adams, Allen (Paisley N)
Buchan, Norman


Anderson, Donald
Caborn, Richard


Archer, Rt Hon Peter
Callaghan, Rt Hon J.


Ashton, Joe
Callaghan, Jim (Heyw'd &amp; M)


Atkinson, N. (Tottenham)
Campbell-Savours, Dale


Bagier, Gordon A. T.
Canavan, Dennis


Barnett, Guy
Carter-Jones, Lewis


Barron, Kevin
Clark, Dr David (S Shields)


Beckett, Mrs Margaret
Clarke, Thomas


Bell, Stuart
Clay, Robert


Benn, Tony
Clwyd, Mrs Ann


Bermingham, Gerald
Cocks, Rt Hon M. (Bristol S.)


Bidwell, Sydney
Cohen, Harry


Blair, Anthony
Coleman, Donald


Boothroyd, Miss Betty
Conlan, Bernard


Boyes, Roland
Cook, Robin F. (Livingston)


Bray, Dr Jeremy
Corbett, Robin


Brown, Gordon (D''fmline E)
Corbyn, Jeremy


Brown, Hugh D. (Provan)
Cowans, Harry


Brown, N. (N'c'tle-u-Tyne E)
Cox, Thomas (Tooting)






Craigen, J. M.
McWilliam, John


Crowther, Stan
Madden, Max


Cunliffe, Lawrence
Marek, Dr John


Cunningham, Dr John
Marshall, David (Shettleston)


Dalyell, Tam
Martin, Michael


Davies, Rt Hon Denzil (L'lli)
Mason, Rt Hon Roy


Davies, Ronald (Caerphilly)
Maxton, John


Davis, Terry (B'ham, H'ge H'l)
Meacher, Michael


Deakins, Eric
Michie, William


Dewar, Donald
Mikardo, Ian


Dixon, Donald
Millan, Rt Hon Bruce


Dobson, Frank
Morris, Rt Hon A. (W'shawe)


Dormand, Jack
Morris, Rt Hon J. (Aberavon)


Dubs, Alfred
Nellist, David


Dunwoody, Hon Mrs G.
Oakes, Rt Hon Gordon


Eastham, Ken
O'Brien, William


Edwards, Bob (W'h'mpt'n SE)
) Park, George


Evans, John (St. Helens N)
Patchett, Terry


Ewing, Harry
Pavitt, Laurie


Fatchett, Derek
Pendry, Tom


Faulds, Andrew
Pike, Peter


Field, Frank (Birkenhead)
Powell, Raymond (Ogmore)


Fields, T. (L'pool Broad Gn)
Prescott, John


Fisher, Mark
Radice, Giles


Flannery, Martin
Randall, Stuart


Foot, Rt Hon Michael
Redmond, M.


Foster, Derek
Rees, Rt Hon M. (Leeds S)


Foulkes, George
Richardson, Ms Jo


Fraser, J. (Norwood)
Roberts, Allan (Bootle)


Freeson, Rt Hon Reginald
Robertson, George


George, Bruce
Robinson, G. (Coventry NW)


Godman, Dr Norman
Rogers, Allan


Gould, Bryan
Rooker, J. W.


Gourlay, Harry
Rowlands, Ted


Hamilton, W. W. (Central Fife)
Sedgemore, Brian


Hardy, Peter
Sheerman, Barry


Harman, Ms Harriet
Sheldon, Rt Hon R.


Harrison, Rt Hon Walter
Shore, Rt Hon Peter


Hattersley, Rt Hon Roy
Short, Ms Clare (Ladywood)


Haynes, Frank
Short, Mrs K(W'hampt'n NE)


Heffer, Eric S.
Silkin, Rt Hon J.


Hogg, N. (C'nauld &amp; Kilsyth)
Skinner, Dennis


Holland, Stuart (Vauxhall)
Smith, C.(Isl'ton S &amp; F'bury)


Home Robertson, John
Smith, Rt Hon J. (M'kl'ds E)


Howell, Rt Hon D. (S'heath)
Soley, Clive


Hughes, Dr. Mark (Durham)
Spearing, Nigel


Hughes, Robert (Aberdeen N)
Stott, Roger


Hughes, Roy (Newport East)
Straw, Jack


Hughes, Sean (Knowsley S)
Thomas, Dafydd (Merioneth)


Janner, Hon Greville
Thomas, Dr R. (Carmarthen)


John, Brynmor
Thompson, J. (Wansbeck)


Jones, Barry (Alyn &amp; Deeside)
Thorne, Stan (Preston)


Kilroy-Silk, Robert
Tinn, James


Kinnock, Rt Hon Neil
Torney, Tom


Lambie, David
Wardell, Gareth (Gower)


Leighton, Ronald
Wareing, Robert


Lewis, Ron (Carlisle)
Weetch, Ken


Litherland, Robert
Welsh, Michael


Lloyd, Tony (Stretford)
Wigley, Dafydd


Lofthouse, Geoffrey
Williams, Rt Hon A.


McCartney, Hugh
Wilson, Gordon


McDonald, Dr Oonagh
Winnick, David


McKay, Allen (Penistone)
Young, David (Bolton SE)


McKelvey, William



Mackenzie, Rt Hon Gregor
Tellers for the Noes:


McNamara, Kevin
Mr. Austin Mitchell and Mr. James Hamilton.


McTaggart, Robert

Question accordingly agreed to.

Clause read a Second time, and added to the Bill.

New Clause 29

SHARE INCENTIVE SCHEMES: EXEMPTION FOR CERTAIN ACQUISITIONS

'(1) After subsection (1) of section 79 of the Finance Act 1972 (share incentive schemes) there shall be inserted—
(1A) Where—


(a) director or employee of a body corporate acquires shares in pursuance of an opportunity to acquire shares of that class offered to directors and employees of the body in their capacity as such ('the discount offer'); and
(b) the discount offer is made in conjunction with an offer to the public (`the main offer') under which shares of the same class may be acquired on the same terms, except that a discount in price is offered to directors and employees; and
(c) the director or employee is chargeable to tax under Schedule E on an amount equal to the discount in the price of the shares acquired by him; and
(d) at least 75 per cent. of the aggregate number of shares of the class in question which are acquired in pursuance of the discount offer and the main offer taken together are shares acquired in pursuance of the main offer,
he shall be treated for the purposes of subsection (1) above as acquiring the shares in pursuance of an offer to the public.
(1B) Where a director or an employee acquires an interest in shares, subsection (1A) above shall apply as if the references in that subsection to the acquisition of shares were references to the acquisition of an interest in shares.".

(2) In paragraph 3 of Part VII of Schedule 12 to that Act (furnishing of information) there shall be inserted at the end—
(2) For the purposes of this paragraph subsections (1A) and (1B) of section 79 shall be disregarded.".'.—[Mr. Moore.]

Brought up, and read the First time.

6 pm

Mr. Moore: I beg to move, That the clause be read a Second time.
This new clause is a relieving provision that seeks to deal with a technical deficiency — [Interruption.] It removes the possibility of an unintended tax charge under section 79 of the Finance Act 1972 in the context of a share acquisition by an employee resulting from an offer to the public by his employing company.
Perhaps I may explain how that could occur and why the tax charge was unintended. The purpose of section 79 was to deter a company from setting up a share scheme in a way that would enable it to pass remuneration to its employees in the form of capital rather than income, and therefore income tax free. We discussed this issue in Committee, and I know that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) is fully aware of it. Section 79 achieves its aim by imposing an income tax charge instead of a capital gains tax charge on the capital appreciation of an employee's share over a period of time, in situations in which there is a significant risk of share values being increased other than by market forces. I think that we all understand the basic avoidance protection there.
Following our review of this whole area, resulting in clauses 38 to 40, an anomaly has come to light. If a company makes an offer of its shares to the public and allows its employees to buy shares at a discount, although in other respects on exactly the same terms, and if payment for the shares is spread in any way the employee would not only be liable to pay income tax on the discount—which is right and proper under the normal rules of schedule E—but would incur the penal growth in value charge imposed by section 79.
This treatment of employees may constrain companies planning to offer shares to the public and employees and was not intended when the legislation was introduced in


1972. We decided to take the opportunity afforded by the current Finance Bill to remove the possibility of an income tax charge on the growth in value where it is clear that both the offer to the public and the discount to the employees are genuine. That is why the other protective conditions are embodied in this new clause.

Mr. Rooker: The clause is intended to ensure that the offer to employees and the public is genuine. If the anomaly has only just come to light and the problem has been around since 1972, why are the Government acting now? Has a particular company had a problem or is the change the result of a review of legislation?

Mr. Moore: The technical deficiency came to light as the result of our review of legislation.

Mr. Rooker: In that case I have even less reason to pursue the other questions that I intended to ask.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 34

DISCLAIMER OF WRITING-DOWN AND FIRST-YEAR ALLOWANCES

—(1) In section 44 of the Finance Act 1971 (writing-down allowances in respect of expenditure on machinery or plant) after subsection (2) there shall be inserted the following subsection:—
(2A) For any chargeable period ending after 13th March 1984 for which a company has qualifying expenditure, the company may, by notice in writing given to the inspector not later than two years after the end of that period, either disclaim a writing-down allowance or require that the allowance be reduced to an amount specified in that behalf in the notice";
and, in subsection (4) of that section, after "(2)" there shall be inserted "(2A)".

(2) With respect to expenditure incurred after 13th March 1984, sub-paragraph (1) of paragraph 8 of Schedule 8 to the Finance Act 1971 (special rules for new ships) shall be amended by substituting for the words from "require the postponement" onwards the words—
(a) require the postponement of the whole allowance or, in the case of a company, disclaim it, or
(b) require that the amount of the allowance be reduced to an amount specified in the notice, or
(c) require the postponement of so much of the allowance as is so specified,
and a notice which contains a requirement under paragraph (b) above may also contain a requirement under paragraph (c) above with respect. to the reduced amount of the allowance".

(3) In consequence of the amendment made by subsection (2) above, the said paragraph 8 shall also be amended, with respect to expenditure incurred after 13th March 1984, as follows:
(a) in sub-paragraph (2) for the words "in respect" there shall be substituted the words "requiring the postponement of the whole or part"; and
(b) at the end there shall be added the following sub-paragraph: —
(6) In any case where a notice under subparagraph (1) above contains requirements under both paragraphs (b) and (c) of that sub-paragraph, any reference in sub-paragraphs (2) to (5) above to the first-year allowance is a reference to the reduced amount of that allowance as specified in the notice.

(4) In any case where—
(a) after 13th March 1984, a company carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, and
(b) apart from any disclaimer of the allowance, a first-year allowance would fall to be made for any chargeable period in respect of that expenditure, and

(c) the company disclaims the allowance by notice under section 41(3) of the Finance Act 1971 or (in the case of new ships) under paragraph ((1)(a) of Schedule 8 to that Act,
then, for the purposes of section 44 of that Act, that expenditure shall not, by virtue of sub-paragraph (ii) of paragraph (a) of subsection (4) of that section, be excluded from the capital expenditure referred to in that paragraph.

(5) In any case where—
(a) after 13th March 1984, a person carrying on a trade, but not being a company, incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, and
(b) if a claim were made in that behalf, a first-year allowance would fall to be made in respect of that expenditure for the chargeable period related to the incurring of it, and
(c) no claim is so made but, by notice in writing given to the inspector not later than two years after the end of that chargeable period, the person concerned elects that this subsection shall apply,
then, for the purposes of section 44 of the Finance Act 1971, that expenditure shall not, by virtue of sub-paragraph (ii) of paragraph (a) of subsection (4) of that section, be excluded from the capital expenditure referred to in that paragraph.

(6) In any case where
(a) after 13th March 1984, a person (whether a company or not) carrying on a trade has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, and
(b) a first-year allowance falls to be made to that person in respect of that expenditure (and, in the case of a person other than a company, a claim is made for that allowance), and
(c) for the chargeable period related to the incurring of that expenditure, the amount of that first-year allowance or, as the case may be, the aggregate amount of that and other first-year allowances which fall to be made to that person is required to be reduced by virtue of section 41(3) of the Finance Act 1971 or (in the case of new ships) paragraph 8(1)(b) of Schedule 8 to that Act,
then, for the purposes of section 44 of that Act, an amount equal to the relevant portion of so much of the expenditure giving rise to the first-year allowance or allowances referred to in paragraph (c) above as was incurred after 13th March 1984 shall be treated as expenditure in respect of which no first-year allowance is or could be made for the chargeable period in question.

(7) In subsection (6) above "the relevant portion" of expenditure giving rise to a first-year allowance or allowances and incurred after 13th March 1984 is that which hears to the whole of that expenditure the same proportion as the amount of the reduced allowance or allowances referred to in paragraph (c) of that subsection bears to what that amount would have been apart from the reduction.

(8) Subsections (2) to (7) above shall be construed as if they were contained in Chapter I of Part III of the Finance Act 1971.'. —[Mr. Moore.]

Brought up, and read the First time.

Mr. Moore: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Harold Walker): With this it will be convenient to discuss:

New Clause 8

CAPITAL ALLOWANCES

`The first year allowances in respect of capital expenditure on machinery and plant incurred after 13th March 1984 under section 41 of the Finance Act 1971 shall be an amount equal to two-thirds of the expenditure in respect of which it is made.`.

New Clause 17

MACHINERY AND PLANT ON LEASE

'In section 46 of the Finance Act 1971 (machinery and plant on lease)

(a) in subsection (2) the words "which he is required to provide under the terms of his lease" and the words from "but" to the end shall be omitted.

(b) after subsection (2) there shall be added the following subsections:—
(3) Where a person incurs capital expediture on the provision for the purpose of a trade carried on by him of machinery and plant on the grant assignment or surrender to him of a lease, the machinery or plant shall be treated for the purpose of this Chapter as belonging to him for so long as it continues to be used for the purpsoes of the trade.
(4) For the purposes of subsections (2) and (3) above, references in section 44(6) above to the sale of the machinery or plant shall include references to the determination assignment or surrender of the lease and reference to net proceeds or price shall mean so much of the net proceeds or price as is attributable to the machinery or plant.".'.

New Clause 27

STRAIGHT LINE DEPRECIATION FOR SHIPS

`(1) Captial expenditure incurred on the provision of a ship by a person carrying on a trade shall be excluded from that person's qualifying expenditure under section 44 of the Finance Act 1971 and capital allowances in respect of such expenditure shall be made to him in accordance with the following provisions of this section.

(2) Allowances in respect of the capital expenditure incurred in a chargeable period ("the first chargeable period") shall be made to the person carrying on the trade as follows—
(a) For the first chargeable period—25 per cent. of the amount of such expenditure.
(b) For each of the three following chargeable periods—25 per cent. of the amount of such expenditure.

(3) Where for any chargeable period ("the relevant period") an allowance falls to be made under subsection (2)(a) or (b) above, the person there mentioned may, by notice in writing given not later than two years after the end of the relevant period, require the postponement either of the whole of the allowance or of so much thereof as is specified in the notice.

(4) Where a notice has been given under subsection (3) above in respect of any allowance under subsection (2)—
(a) the allowance shall, as the case may require, be withheld or withdrawn, or partially withheld or withdrawn, and
(b) the person giving the notice may claim the amount withheld or withdrawn as an allowance for any subsequent chargeable period in which he carries on the trade, or may claim allowances not exceeding that amount in the aggregate for any two or more such periods.

(5) All such assessments and adjustments of assessments shall be made as may be necessary to give effect to the provision of this section.

(6) An allowance which is postponed by virtue of this paragraph shall not by reason only of the postponement fall within the references to allowances or amounts carried forward from an earlier year or period in section 169(4)(d), 174(6) and 259(2) of the Taxes Act (loss relief and group relief).'.

New Clause 31

WRITING DOWN ALLOWANCES

'For expenditure on plant and machinery in respect of which first year allowances were made, the writing down allowance provisions of Chapter 1 of Part III of the Finance Act 1971 shall not apply but instead there shall be given an allowance at the rate of 25 per cent. of the expenditure in each year other than that in which a first year allowance was given, on a straight line basis.'.

Government amendment No. 44, and the following amendments to schedule 12:

No. 45, in page 160, line 44, leave out from beginning
 to end of line 2 on page 161, and insert
'1985 and before 1st April 1986, the words "one half' and

(b) with respect to capital expenditure incurred on or after 1st April 1986 and before 1st April 1987, the words "one quarter";
and no initial allowance shall be made in respect of expenditure incurred on or after 1st April 1987".

No. 47, in page 161, line 17, leave out '1984 and before 1st April 1985' and insert '1985 and before 1st April 1986'.

No. 48, in page 161, line 19, leave out from 'or' to end of line 23 and insert 'after 1st April 1986 and before 1st April 1987, the words "one half'; and no first year allowance shall be made in respect of expenditure incurred on or after 1st April 1987'.

No. 159, in page 161, line 20, leave out 'and before 1st April 1986'.

No. 189, in page 161, line 36, at end insert—
'2A. Where in charging a business to tax there is taken into account any capital allowance and the taxpayer concerned submits or has submitted his returns for accounting periods or years of assessment ending on or before 31st March 1984 or 5th April 1984 respectively on the basis that relevent expenditure was incurred when the asset first belonged to him or if earlier when the sum in question was paid, then that expenditure shall be deemed to have been incurred at that time. '.

No. 52, in page 161, line 38, at end insert—
'3(1) In section 46(1)(a) of the Finance Act 1971 for the words "at the commencement of the letting" there shall be substituted "at the following time:—

(a) in the case of a lessor of machinery or plant fixed to a building or land in circumstances such that a transfer of his interest in the building or land would operate to transfer his interest in the machinery or plant, at the date of the incurring of the expenditure; or
(b) in any other case at the commencement of the letting".
(2) This paragraph has effect in relation to capital expenditure incurred under a contract entered into on or after 14th March 1984.' .

No. 174, in page 163, line 6, leave out '1986' and insert`1990'.

No. 175, in page 163, line 9, leave out '1985' and insert `1989'.

No. 176, in page 164, line 7, leave out '1986' and insert '1990".

No. 177, in page 164, line 13, leave out '1985' and insert '1989'.

Mr. Moore: I hope that I shall not take too long to explain the new clauses and amendments, but I apologise if I take longer than normal. The group includes a large number of new clauses and amendments, which we have discussed before. It would be improper if I did not give the subject the attention that it merits.
The new clauses deal with tax reforms made in the Finance Bill. The corporate tax system which existed before the Budget was one of high nominal rates of tax, tempered unevenly by substantial reliefs. The reliefs introduced a wide measure of distortion. They gave the wrong signals. Taxpayers were persuaded to take decisions such as whether to invest in capital-intensive or labour-intensive machinery and plant, not because of the underlying commercial considerations, but mainly—and sometimes wholly — because of the taxation implications. They were responding not to the stimuli of the market place but to those of the Government.
Hence, even though there might have been a considerable amount of investment in plant and machinery


it was not necessarily worthwhile investment which could be used productively or effectively. Our comparative performance over the years, when we were falling behind our European and other competitors in the industrial world, shows the results all too clearly.
The strategy announced in the Budget is to bring down substantially — by one third — the main rate of corporation tax over three years and to cut the small companies rate of tax immediately to the same level as the basic rate of income tax.
At the same time, the Chancellor has abolished stock relief and is reducing the level of capital allowances so that they broadly reflect depreciation, that is, the extent to which capital assets are used up in the course of producing goods or services. I shall deal later with the point with which the hon. Member for Colne Valley (Mr. Wainwright) has discussed in correspondence with me.
The new system, when fully in place, will thus treat companies in a more even-handed manner. They will be encouraged to find projects which are commercially efficient rather than merely tax-efficient. The discrimination between different assets and different sectors will be reduced and the market will be left to determine the most effective allocation of resources between them.
In the longer term, as the transitional period is fully worked through, companies will see a reduction in their effective rate of tax. The overall effect will be to encourage enterprise and reward success.
Hon. Members and people outside have been discussing the flexibility of allowances. The substitution in the case of machinery and plant of writing-down allowances for first-year allowance goes rather further than simply substituting an allowance of 25 per cent. for one previously given at 100 per cent. Writing-down allowances, which date back to 1878, involve different rules from the more recent first-year allowances. In particular, first-year allowances have tended to be more flexible.
We have therefore, looked at the rules for each allowance in detail to see how far the greater flexibility of first-year allowances was attributable to the fact that they were providing an incentive to investment. Where they were not, there was a case for amending the rules for writing down the allowances to bring them into line.
6.15 pm
One such difference between first-year allowances and writing-down allowances was covered by my right hon. Friend on Budget day. This concerns the timing of the allowances. First-year allowances become due when the expenditure is incurred. Writing-down allowances do not start to run until an asset is brought into use. In the case of assets with a long lead time, such as ships, this can be substantially later. Accordingly, my right hon. Friend announced that he intended to drop the condition for writing-down allowances that the asset is brought into use. Instead, writing-down allowances should be available when the expenditure is incurred.
My right hon. Friend made it clear, however, that the change should not be made until next year's Finance Bill. Subsequently, in an answer to my hon. Friend the Member for Buckingham (Mr. W.alden) on 30 March 1984 I explained that the change would take effect for expenditure incurred after 1 April 1985. Since then it has been put to us that anomalies could arise in the case of

expenditure incurred in the current year for which the first-year allowance was 75 per cent. In such cases the remaining 25 per cent. of the expenditure might not start to attract writing-down allowances next year because the asset was not immediately put into use. Accordingly, I can now say that we shall drop the condition for writing-down allowances that the asset must be brought into use in respect of chargeable periods ending on or after 1 April 1985.
Another point that has been put to us concerns identifying the actual date on which expenditure is incurred. The point follows a question put to us by my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst). It is also the subject of amendments Nos. 187 and 189 tabled by my hon. Friend the Member for Croydon, South (Sir W. Clark).
Briefly, the position is as follows. Allowances normally become due when expenditure is incurred and the asset belongs to the taxpayer. Under contract arrangements where there is a settlement period — usually 30 or 60 days—following the invoice date, the normal tax law indicates that the allowance is due when the purchaser is legally required to pay it, that is, on the settlement day. However, if payment is made earlier the Revenue is usually prepared to accept the date of payment as the date on which the expenditure was incurred.
Representations have been made to us by a number of bodies that, under normal accountancy practice, expenditure is regarded as having been incurred on the date that the invoice is sent out, whenever payment may actually be made and whatever the date on which settlement is required. My hon. Friend's proposal is similar because it could deem expenditure to he incurred when the asset first belongs to the purchaser.
At first sight I do not find the proposals attractive. They involve a significant change, potentially opening up considerable possibilities for abuse. Moreover, potentially very significant amounts of tax are at stake. However, I have asked the Inland Revenue to explore the point over the next few months with the representative bodies which have raised the matter and to see whether conforming to the letter of the law does, as the bodies say, cause problems for them in record-keeping and other internal procedures. I hope that my hon. Friend agrees that that is the right way to approach the issue.
I shall now explain the changes made in clause 34. First, the present rules for first-year allowances provide that they may be disclaimed. If they are, writing-down allowances at 25 per cent. a year on a reducing balance basis take over.
There is no similar provision for companies to disclaim writing-down allowances. These allowances are force fed to companies and must be taken in the year in which they fall due. If they cannot be used, they are converted into tax losses and used only in future against the profits of the same trade. Most businesses will wish to take their writing-down allowances as they arise. There may be circumstances in which a business, whether unincorporated or a company, would prefer not to take them in a particular year so as to increase the writing-down allowance available in subsequent years for setting sideways against other income. Subsection (1) of new clause 34 will provide an option to allow a company to disclaim writing-down allowances.
The other changes being made relate to the transitional period. Under existing law a company cannot disclaim all


or part of the first-year allowances on a new ship. With first-year allowances at 100 per cent. and free depreciation, the point was immaterial, but during the next two years it could be important in the transitional period. Therefore, it is right to make that change.
A further change in the rules relating to the allowances for new ships is also needed because of the reduction in the rate of first-year allowances to ensure that the difference between the expenditure on the new ship and the first-year allowance qualifies for writing-down allowances. This requires an amendment to schedule 8 of the Finance Act 1971 and is introduced by the first half of amendment No. 44, which adds two new subsections to clause 57, the first of which makes the necessary change.
This is a very complicated area. The final change made by new clause 34 is the most significant. It is of general application but will be of particular value to the shipping industry because of the lumpiness of its investment. The purpose of the change is to provide that when, during the transitional period, a taxpayer disclaims first-year allowances—which would be at the rate of 75 per cent. this year and 50 per cent. next year—the expenditure will go immediately into his pool of assets so that it can receive writing-down allowances.
I apologise to the House for having to move a manuscript amendment, which has been put with this group, to new clause 34 to correct a technical defect in subsection (7). A purpose of new clause 34 is to enable a taxpayer to choose not to have first-year capital allowances as part of his expenditure on equipment, but instead to put that part of his expenditure into his writing-down allowance pool for that year. That is to help taxpayers in certain circumstances. Unfortunately, subsection (7), which deals with the calculation of the expenditure which is to go into the pool, is defective and produces the wrong result. That must be put right, and the amendment makes the necessary correction.
The change that we are proposing was put to me helpfully and clearly by my hon. Friends the Members for Macclesfield (Mr. Winterton) and for Hampstead and Highgate (Sir G. Finsberg) in correspondence this year after the Budget. It will mean that, when a business replaces an asset and obtains the replacement in the same year as it makes the disposal, it will be able to set the cost of the new asset against the proceeds arising from the disposal of the old asset. That will be of particular value where the second-hand value of an asset is high and where a considerable balancing charge could otherwise arise.
Were we not to make this change, taxpayers who replace assets with a high second-hand value would find themselves worse off during the transitional period because we are phasing out the first-year allowances over a period of years and not going straight to the system which will be in operation after 1986. That will be an important change and will affect many businesses. For example, if a business operates fleets of cars and changes its fleets each year, it will have important consequences for the British automobile industry.
The cost of this change, which is at the heart of the changes in the new clause, will be about £50 million over the next three years. However, it is only a transitional measure, of which about one half will go to the shipping industry. The change will be of considerable value to that industry and will be welcomed by all hon. Members.
It has been put to us, notably by my right hon. Friend the Member for Spelthorne (Sir H. Atkins) and my hon. Friends the Members for Banff and Buchan (Mr. McQuarrie), for Bristol, North-West (Mr. Stern), for Croydon, South and for Romsey and Waterside (Mr. Colvin) that, although they welcome any help that we give the shipping industry, the proposal is not sufficient. They believe that the shipping industry should be able to retain the special tax treatment which it has enjoyed for many years, especially given the difficult period through which it is passing.
I know that my right hon. and hon. Friends appreciate why the Chancellor of the Exchequer set his face in the Budget against having any special rules for particular industries or types of assets. The main reason was the economic case. We intend to get rid of the distortions which special tax rules introduce and which inhibit the flow of resources to areas where they can be put to best effect. There is also the practical problem, which hon. Members on both sides of the House, skilled advocates though they are, are slow to argue, that the reasons advanced for favouring industry A apply equally and perhaps more strongly to industry B. At the same time, I accept that there are reasons for accepting that the shipping industry is a special case. These arguments are not concerned primarily with economic considerations. I recognise that, set against the worldwide shipping recession, the low profitability and high costs of our shipping industry make it especially vulnerable to the forces of change.
There are, however, two further strategic considerations. The first relates to our defence needs and to our requirement for merchant ships both for military reinforcement and for naval support. All hon. Members in Committee brought that point out in great detail. We are all well aware of the invaluable role played by our Merchant Navy in the Falklands, and hope that a similar need will never arise again, but our policy cannot be determined by hope.
Secondly, we are an island and live by maritime trade. We reject the argument that this industry or that industry is essential. We know that it pays us to concentrate on what we do best, to import what we do less well and to let the international market be the test. The argument is equally fallacious today when it is applied to shipping as it is to other industries, for we can also import shipping services cheaply. There is, however, one major distinction: one day we may not be able to do so, in which case we may be unable to import the other goods and services required.
Given those two strategic and largely uneconomic reasons for regarding our shipping industry as different from other industries, we recognise, despite the general arguments for avoiding special cases, that there are strategic grounds for continuing into the new system of corporate taxation special provisions for shipping. We therefore decided to continue the system of free depreciation for new ships, which has been part of the tax code since 1965. Free depreciation within the new system of corporate taxation will not work in the same way as it did when we had first-year allowances. In those years allowances on the whole of the expenditure could be taken as soon as it was incurred.

Mr. Robert Hughes: rose—

Mr. Moore: I shall give way in a moment, but I wish to conclude the section on shipping, because it is important for the hon. Gentleman to understand its full ramifications.
In future, free depreciation will be limited to the writing-down allowances in respect of expenditure on new ships which have already become due at any particular time.
This will mean that, by contrast with the general facility to disclaim writing-down allowances under subsection (1) of the new clause, when a new company has decided not to take its writing-down allowances for a new ship in any particular year, it can carry them forward and use them in a subsequent year in addition to the writing-down allowances falling due for that year. In that way, free depreciation will give shipping companies a valuable measure of flexibility by allowing them to utilise group relief. The legislation to permit this to be done will be included in next year's Finance Bill and will relate to writing-down allowances due for accounting periods ending on or after 1 April 1985. The benefit of the change will have no negative impact as a consequence of that timing change. The benefit of the change will take some years to build, but we estimate that it could cost the Exchequer, and therefore benefit industry by, about £30 million a year.

Mr. Robert Hughes: I missed the beginning of the Minister's speech, so if he covered the point that I am about to make, I apologise. The Minister spoke about shipping, but he will know that representations have been made that the tax changes on capital allowances will adversely affect the fishing industry. Do the changes he has just announced cover fishing vessels?

Mr. Moore: I had not covered that point because we shall discuss it on a later amendment. The provisions cover new vessels, including fishing vessels.

Sir William Clark: I welcome the free depreciation for shipping, but is it a 100 per cent. allowance or a 75 per cent. allowance?

Mr. Moore: The free depreciation relates to the new system, so in the transitional period it will be a 75 per cent. and then a 50 per cent. allowance, and after the transition it will be a 25 per cent. allowance. On that basis, it will benefit the shipping industry by £30 million a year after the transitional period. That demonstrates its potential significance to the industry.

Mr. Richard Wainwright: Why is it not proposed to retain those allowances for the passenger aircraft industry, having regard to the fact that in an emergency passenger aircraft are requisitioned and are often of prime importance?

Mr. Moore: That is a different point, which I shall be happy to address later. There is a different dimension to our maritime needs which was recognised in Committee and has been recognised in all the debates outside the House. Another factor is that the shipping industry is the only one that already has free depreciation on new ships.

Mr. Michael Colvin: I am grateful to my hon. Friend for giving way, as it will probably save me from having to make a speech later. Does the free depreciation extend to second-hand ships? We are worried about the number of ships laid up at

present, and although I appreciate the importance of having a thoroughly modern British fleet, the ability to bring ships back into service is important.

Mr. Moore: No, it relates to new ships, as it clearly did in the past.
I have taken some time to explain the essence of the major changes in new clause 34 and the provisions associated with it. It was for the benefit of the House that I covered shipping, although the 1985 legislation will substantiate what I said.
I shall now deal with some of the criticisms made about the thrust of our budgetary reforms in this area. Obviously, not every company will benefit from the changes. Nor have we pretended that every sector will benefit to the same extent, especially during the transitional period, and some companies may need to make fairly rapid adjustments under the new regime. Inevitably, with such a far-reaching reform of the corporation tax system, there have been criticisms. Researchers at the Institute of Fiscal Studies recently suggested that the Budget proposals on corporation tax would impose higher tax burdens on companies. We do not accept that. The proposals will cost the Exchequer, and so benefit companies by, £280 million in 1984–85 and £450 million in 1985–86. During the transitional period, they should have a broadly neutral effect. When the changes are fully worked through, companies will enjoy substantial reductions in the tax that they pay.
The object of the exercise is to stimulate enterprise and encourage expansion. The IFS comes to a different conclusion for two main reasons. First, it assumes that inflation will increase to about 7·5 per cent. in 1987 and will then remain at 7 per cent. There is no basis for that. Our estimates reflect our determination to continue reducing inflation from its present level of about 5 per cent. They derive also from the assumptions implicit in the medium-term financial strategy and in the Green Paper on public expenditure and taxation in the 1990s.

Mr. Robert Sheldon: May we infer from what the Financial Secretary says that if inflation remains at between 7 per cent. and 7·5 per cent. the conclusions of the IFS are correct?

Mr. Moore: I was about to mention the second major problem with the institute's analysis. However, the assumption of inflation is a critical factor in the debate in consequence to the removal of stock relief, which is another factor in the pattern of taxes paid by corporations to the Treasury. Secondly, as the IFS acknowledges—the right hon. Gentleman will recognise this — the sample of companies on which its projections are based does not represent industry and commerce as a whole.
I shall now consider how we should implement the policy in relation to allowances for capital expenditure. Several arguments must be disentangled.

Mr. Mark Fisher: Does the Financial Secretary concede that the IFS study concentrated on manufacturing industry, not on industry as a whole?

Mr. Moore: I certainly concede that, since the study disproportionately did not reflect the whole of British industry.
After the transitional period, the aim of the capital allowance should be to match in the tax system the using


of capital assets while producing goods or services—that is, depreciation. We are seeking to remove from capital allowances the other purpose that they presently serve, which is to provide an incentive to investment by means of front-end loading of the tax allowances. By removing the incentive element we shall go a long way towards getting rid of the distortions now running rampant in the business tax system. We shall not be able to eliminate them completely, but that is no reason for not making a good start.
We wish to provide a system of writing down allowances that will ensure that machinery and plant is written down for tax purposes to 10 per cent. of its original value, usually taken as scrap value, within eight years. That is rather shorter than the average life of business assets generally, so that, taking one asset with another, depreciation will be more than fully covered for tax purposes. At the same time, the investment subsidy will have been largely removed. The hon. Member for Colne Valley asked me about expenditure being written off after eight years. It is simply a matter of arithmetic; writing off an asset by means of annual writing-down allowances of 25 per cent. reduces the scrap value to 10 per cent. after eight years. The analysis was based on the accumulative data of the Central Statistical Office, which relates to industry's experience with the Revenue.
A different strand of the argument in Committee was whether there should be a uniform rate of writing-down allowances or varying rates. I accept that there are arguments both ways. By definition, any average figure will write off some assets faster than their true lives, while others will be written off more slowly. That is what we mean by an average, and it applies also to a figure on the generous side of average, which is what we have here. There is a case for saying that assets with short lives—my hon. Friend the Member for Macclesfield has raised this point with me many times—such as some of those using the latest high technology, should be written off before eight years. Proponents of that view will doubtless be prepared to accept in logic that assets with long lives, such as ships, should be written off more slowly than we have proposed. Many other countries have varying rates of depreciation from five to 15 years, and there were similar arrangements in the United Kingdom until the late 1960s.
The hon. Member for Colne Valley asked me about practices in other countries, especially France and Germany. Of course, for some assets, including road transport vehicles and construction equipment, the writing-down allowances will be more generous than they are here. Equally, our allowances for other assets will be more generous. Overall, and taking the average our system will be broadly in line with those abroad. Nevertheless, before the Budget we considered carefully the possibility of having more than one rate. We concluded that, on balance, the comparative simplicity of applying a uniform rate would save much work and argument for the taxpayers, their advisers and the Revenue. I am constantly pressed to introduce a simpler tax system. It does not lie in the mouths of those who do so to complain about the inevitable round-ups. Moreover, the majority of companies will have assets with varying lives, so in their case an average figure would not be unreasonable.
Once we have decided on the level of allowances and whether they should be at a uniform rate, there is a rather more technical argument: is it better to write off assets for tax purposes on a straight-line basis or on a reducing basis?
We in the United Kingdom are now using both systems —the straight line basis for industrial building and the reducing balance basis for machinery and plant.
My hon. Friend the Member for Croydon, South has a new clause, No. 27, which would introduce straight-line depreciation for ships. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) has another, new clause 31, which would make straight-line depreciation applicable to all machinery and plant.
Again, there are arguments on both sides. But the one which weighs most with us is that retaining reducing balance allowances for machinery and plant enables us to keep the very considerable administrative saving in the system of pooling expenditure. Before the present system of capital allowances was introduced, each item of capital expenditure had to be separately calculated. Now they can all be brought together and the expenditure can be pooled. Acquisitions of machinery and plant can be lumped together, as can disposals. Thus, the administrative complications of the straight-line basis are not nearly so serious for industrial buildings, because obviously there are far fewer acquisitions of those.
But those are technical arguments. We must not let them get confused with the substantive argument which concerns the thrust of the Budget strategy for business taxation introduced by my right hon. Friend, which brings us back to Opposition new clause 8. The aim of our proposal is clear, and I do not apologise for repeating it. It is to encourage risk taking and initiative and to reward success; to remove the distorting effect of tax subsidies so as to let market forces, rather than tax planners, determine which projects proceed; and to get tax rates down.
The proposal of hon. Members opposite — as incorporated in new clause 8—would fail on all these counts. It would retain within the business tax system a substantive tax incentive, distorting investment decisions in the way that has in the past discouraged business men, who would prefer to make decisions on the basis of genuine commercial judgment. It would continue to promote projects which, without the subsidy, were only marginally economic or even totally uneconomic while projects which provided the nation with a better real return were squeezed out.
The cost of the proposal for a first-year allowance of 66⅔ per cent. would be enormous, in excess of £3 billion over the next five years, and then at a rate of £1·5 billion per year thereafter. It would substantially restrict the opportunity for making cuts in the corporation tax rate.
That brings me to the alliance proposal in new clause 31 for a 25 per cent. writing-down allowance on a straight-line basis for all machinery and plant. We debated this proposal at length in Standing Committee. I pointed out that, since it would write off total cost in four years, it would retain a significant investment incentive in the system.
I also explained the extra administrative costs it would entail for industry and the Revenue, because the pooling system would have to be dismantled, a point to which I have already referred. I pointed out that it would cost over £2 billion—not quite as expensive as the proposal of the hon. Member for Thurrock (Dr. McDonald)—over four years. Like the proposal put forward by the official


Opposition, it seeks to make major increases in tax subsidies without any indication of how that amount of money is to be recovered or where the offsets are to be found.
That brings me to the more moderate proposals of my hon. Friend the Member for Croydon, South. The first is his proposal in new clause 27, that 25 per cent. writing-down allowances on a straight-line basis should be available in respect of new ships. Clearly, that would not attach to it the enormous cost involved in the previous two proposals, but it would still be significant. It would, nevertheless, involve a special rate of allowances for one industry alone, which would not be consistent with our policy of an even-handed approach. Nor would it be consistent, as I have explained, with the policy arrangements, and for those reasons I could not recommend my hon. Friends to accept the proposal.
However, I hope that my hon. Friend the Member for Croydon, South noted what I said earlier about our proposals for providing increased flexibility in the use of allowances and, in particular, what we have undertaken to do for the shipping industry by continuing for it alone the concept of free depreciation in respect of writing-down allowances. As I said, these changes will be of considerable value to the shipping industry, and I hope that hon. Members will agree that we have gone as far as we reasonably could in recognising the special position of that industry.

Mr. Campbell-Savours: Has the Minister seen comments in the media in recent months to the effect that the combination of the changes in capital allowances, taken with corporation tax, will affect company cash flow by 1986 to the tune of £1·5 billion? Are the Government not concerned about the effect that that will have on the employment prospects of people who might otherwise be employed?

Mr. Moore: If those comments were accurate, of course we should be extremely concerned, but I argued earlier about the impact that we thought the Government's capital allowances and corporate tax changes would have, and they are different from outside analyses. I have, in previous discussions, illustrated why, for example, I thought that the comments of De Zoete and Bevan and others were inaccurate in that regard, but I shall return to that subject if hon. Members wish me to do so. I still have much to say and I am anxious not to belabour the House for too long, but my speech must cover many important areas.
My hon. Friend the Member for Croydon, South—supported by the hon. Member for Come Valley — in amendments Nos. 45, 47 and 48, has proposed a change of a more general application, which is the deferral, effectively, by one year of the phasing out of the initial and first-year allowances. I am aware that my hon. Friend approves of the reductions in corporation tax rates that are proposed but that he is also concerned about what he sees as an over-abrupt removal of incentives to investment from the capital allowances system. I recognise that it is of the nature of the change that some businesses will need to reassess their investment programmes in the light of the new circumstances. In some cases, I accept, the result may be that projects will be less profitable after tax than they were before the Budget.
Clearly, the question how the new system of capital allowances should be phased in was an important factor in the mind of the Chancellor in constructing his business tax reforms. He concluded that it was right to start the change immediately, rather than delay it for a year or even longer.
A number of reasons lay behind my right hon. Friend's decision. First, it is these changes in the capital allowance structure which, together with the abolition of stock relief, allow us to make the very significant cuts in taxation which have attracted the approval of my hon. Friend the Member for Croydon, South. If the reductions in allowances were deferred, the cost would be £2 billion, and this alone would slow down the staged reductions in the corporation tax rate.
Secondly, we have provided a two-year transition period during which incentives to investment remain available and are still generous. We have also retained the pre-Budget rates of capital allowance for certain regional projects and for expenditure contractually committed on or before Budget day. In this way, we have fully protected these projects from the changes.
Thirdly, we believe that the sooner we reach the new system of lower allowances and lower tax rates the better. My conclusion is that I see no real advantage in delaying the reform of the capital allowance system, and many good reasons for starting the process at once.
That brings me to amendments Nos. 159 and 160 tabled by my hon. Friend the Member for Banbury (Mr. Baldry). These, likewise, would make radical changes with which I regret I cannot concur. I shall listen with care to what my hon. Friend says about the self-employed and I shall address the points he makes when I reply. On the face of them, I do not find his proposals attractive.
Amendments Nos. 174 to 177 in the name of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and his hon. Friends, if I have understood them correctly, purport to amend the provisions in paragraphs 5 and 6 of schedule 12 dealing with the spreading of expenditure where arrangements are undertaken which will artificially forestall the reductions in the first year and initial allowances.
It is difficult, however, to see how they would mesh in with any of the official Opposition's other proposals. Their effect would appear to be to extend the period during which contracts would be caught within the spreading provisions by a further four years, beyond 1986; that is, beyond the transitional period.
There can, however, it seems, be no purpose in doing this unless, at the same time, provision is made for the withdrawal of first-year and initial allowances to he phased over a longer period and for a corresponding adjustment of the formula for calculating how expenditure is to be allocated among the further four years of the transitional period. I shall deal with the spreading provisions in due course, when we discuss paragraphs 5 to 8 of schedule 12, and I shall be proposing some changes. But the proposals here do not seem to be capable of serving any useful purpose.
Before coming to the important new clauses tabled by my hon. Friend the Member for Tatton (Mr. Hamilton), I should mention a further addition that we are proposing to clause 57 of the Bill, which is contained in the second part of amendment No. 44. I have already discussed the first part of the amendment when referring to ships.
This change is mainly for the purpose of clarification. On Budget day, the Chancellor announced that the 100 per


cent. initial allowance for buildings in enterprise zones would not be affected by the capital allowance changes; that the 100 per cent. initial allowance for small industrial workshops would continue until that scheme ended on 26 March 1985; and that no change would be made this year in the 20 per cent. initial allowance for hotels, though that allowance would be abolished in 1986.
It has been suggested that, with clause 57 and schedule 12 in their present form, it is not certain that the objective sought by my right hon. Friend has been achieved. For the avoidance of doubt, therefore, the second part of the amendment makes it clear that the allowances are not affected by the provisions in the Bill.
The purpose of new clause 17, which stands in the name of my hon. Friend the Member for Tatton, is to provide for allowances to be given to a lessee of a building who incurs capital expenditure on plant and machinery, such as lifts or heating and ventilation equipment, which forms part of its fabric and thus becomes a landlord's fixture. Under the law as it stands, a lessee would be entitled to allowances only if he were required to incur the expenditure under the terms of his lease. Where he is not entitled to capital allowances it is likely that under the law no other person will be entitled to allowances either.
The clause arises out of the case of Stokes v. Costain Property Investment Limited. I shall not weary the House with details of that case, apart from saying that it concerned expenditure on the installation of lifts and central heating equipment in two buildings which Costain was developing for use as offices and shops. In neither case was Costain the freeholders of the property and in each case the property was under-let for use by other companies. Hon. Members on both sides of the House will be aware that this has wide ramifications for industry.
The Court of Appeal decided that no allowances were due for expenditure on the lifts and other fixtures. My hon. Friend is proposing to widen the law to cover the statutory gaps in the provision to which attention was drawn in the judgment of the House of Lords and I have considerable sympathy with his aim. Where expenditure of this nature has been properly incurred in the course of a person's trade, it is only right that capital allowances should fall due.
I have to say to my hon. Friend, however, with all due respect to a member of the tax Bar, that the clause will not do as it stands. It would enable more than one person—for example, the freeholder and another lessor, and possibly a trading lessee as well — to obtain an allowance for what was essentially the same expenditure. I do not wish to labour the point, because the subject matter is far from straightforward. I know that my hon. Friend did not intend his clause to go any further than repair the omission to which the Court of Appeal referred. Clearly there would have to be rules to avoid double allowances.
The Costain case ended its passage through the courts only just before Easter and because of the complexity of the issues raised we have not yet been able fully to work out all the necessary details. However, in principle I accept the point made by my hon. Friend in his new clause and, if he will seek leave to withdraw it, I can assure him that the Government will include their own clause to deal with the matter in next year's Finance Bill. This is of great importance to the outside world.
In essence, the purpose of our clause will be to provide that, when in the course of carrying on a trade or an investment letting business expenditure has been incurred on machinery or plant which becomes a landlord's fixture, someone should get an allowance even though the machinery or plant might not belong to him. However, there will have to be ordering rules to decide who should be entitled to the allowances where more than one taxpayer can claim to have incurred such expenditure. We intend that a financial lessor of the plant, such as a bank which leases the plant to the tenant of the premises, should get priority to the allowances as it will originally have financed the expenditure. But where there is no equipment lessor, the allowances should go to the most subordinate of the lessees with an interest in the land who qualifies under these rules.
There will have also to be rules to ensure that a balancing adjustment—either a charge or an allowance —can be made at the appropriate time. This will be where the person with the allowance sells the freehold, or assigns, transfers or surrenders his leasehold, or if the lease comes to an end but not where a sub-lease is granted out of the lease; if the machinery or plant is dismantled and sold, scrapped, demolished or destroyed; if the trade in which the machinery or plant is used is permanently discontinued, or if the plant permanently ceases to be let; or if the equipment lessor sells or assigns his rights under the leasing contract. In many of these instances there will then be some other taxpayer who will have incurred expenditure on the machinery or plant and who will then be entitled to capital allowances for the expenditure under the rules which I have described.
I propose that the Government's clause next year should take effect in relation to expenditure incurred after today. However, where a taxpayer has already entered into a lease which obliges him to install fixtures, the existing law will apply satisfactorily and the provision will not disturb his entitlement to the allowance. Meanwhile, the practices which the Inland Revenue has been running in an attempt to overcome some of the weaknesses in the present provisions have been shown by the decision in the Costain case to have no statutory foundation. I have, however, authorised the Revenue to continue to apply these practices to expenditure incurred up to and including today, and to expenditure, whenever incurred, on contracts entered into on or before today.
The House will have gathered that the matters covered by my hon. Friend's new clause are far from straightforward. The Inland Revenue has already had several discussions on the issue with most of the representative bodies and I should like to thank all those who have taken part. The discussions have proved useful in enabling us to determine what needs to be done, but I do not think that the consultations should end there. I shall be asking the Inland Revenue to issue draft legislation on this matter in the course of the autumn along the lines that I have just spelled out. This will provide a basis for fuller discussion of the details before we return to the subject in next year's Finance Bill. In the meantime, I hope that the statement which I have made of the Government's intentions will provide a sufficient basis for transactions to proceed with reasonable certainty on the tax implications.

Sir Geoffrey Finsberg: My hon. Friend will recall that I raised this matter with him


in April. He responded by sending me a helpful letter. Am I to understand from what he has said that, until he is able to produce a clause for next year's Finance Bill, there will be what I might loosely call an extra-statutory concession, which will cover that which the House of Lords judgment said should he covered?

Mr. Moore: My hon. Friend raised this matter shortly after the Budget statement. It is an important and complex one. I can confirm that the existing practices, which have continued to apply until today, and the practices for the ordinary rules as outlined in my statement, will continue under the provisions and the direction which I have given to the Revenue, which will be covered by next year's Finance Bill.
My hon. Friend the Member for Mid-Staffordshire (Mr. Heddle) tabled amendment No. 52, which is primarily concerned with the capital allowances due on plant and machinery which is fixed to a building. This is another proposal with which I regret I am unable to concur. I shall naturally listen to what my hon. Friend says and I shall address myself to his arguments when I come to reply. I do not find his amendment attractive.
I must apologise to you, Mr. Deputy Speaker, and to the House for the length of this speech. However, I have attempted to cover at least briefly the wide range of topics with which this group of new clauses and amendments is concerned. Some of the matters on which I have touched have been of considerable technical complexity and of great importance to industry and commerce. Although they are matters of detail, they are nonetheless important to those concerned.
The major issues to arise have been related to one of the most important strands of the tax strategy which my right hon. Friend introduced in his Budget. Taken in conjunction with the substantial reductions in the rates of corporation tax and the abolition of the national insurance surcharge, the changes in capital allowances that we are making hold out an exciting prospect for all those who have the enterprise to reach out for it and the efficiency to grasp it. We are taking one more step along the road of freeing the economy from the grip of Government intervention and letting it grow as the market—all of us, as consumers, savers, investors and producers — determines.

Dr. Oonagh McDonald: We have certainly had a long and detailed speech from the Financial Secretary dealing with deficiencies in the legislation that was first introduced in the Finance Bill. It seems that the deficiencies were not discovered during our long debates in Committee. Even a manuscript amendment has had to be produced at the last moment. This does not seem to be an especially efficient way of introducing legislation.
Certain changes have been made to shipping taxation and allowances. As Tilbury docks are in my constituency, I understand a little about the needs of the shipping industry. However justified they may be, these are generous tax concessions. Depreciation will amount to £30 million per year and allowances to £50 million per year.
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Two issues have not been tackled. Having granted generous and unique concessions to the shipping companies, by phasing out capital allowances the Government have departed from the provisions laid down in the Financial Secretary's statement. Having said that

those allowances would be phased out to ensure free competition and to prevent distortion through taxation, the Government have singled out one industry for taxation concessions. However justified the Government may think their action, it is a departure from their principles.

Mr. Moore: I apologise for interrupting the hon. Lady. I made a very long speech, and obviously some facts need to be commented on in more detail later. Let me make the record clear. The £50 million of benefit in the transitional period is for the whole of British industry. Only half relates to the shipping industry—that is approximately £25 million. There is also £30 million in depreciation.

Dr. McDonald: Nevertheless, it is a generous concession. Given the parlous state of the British shipbuilding industry, I believe that the concession should be linked to encourage British companies to buy British ships, and I should have liked the Financial Secretary to say something about that aspect. The hon. Gentleman justified the measure by claiming that we need British ships to engage in trade, leading to other benefits. Those ships can be requisitioned for use by the Merchant Navy, as was done during the Falklands war. I am not sure whether that condition applies if the ship flies not a British flag but a flag of convenience. These tax concessions could allow shipping companies, first, to purchase a non-British ship from one of our major competitors and, secondly, to use those ships under a flag of convenience, so that they would not be available for defence purposes. That reason was part of the Financial Secretary's justification for the measure.

Mr. Colvin: rose—

Dr. McDonald: I shall not give way. I hope that the Financial Secretary will deal with that point later, if that is not the case.
I turn to the main thrust of the Government's changes in capital allowances. The Government have decided to phase out those allowances, replacing them with a reduced rate of corporation tax. The changes that were announced to clarify the original legislation and the reaction of industry, the City and the banking sector might have been avoided if the Government had done what they said they would do when introducing the Green Paper in 1982. The Government expressed the wish that the
material in this Green Paper will contribute to the full and informed public discussion which they believe is an essential precondition for any further major change.
The Government went on to introduce changes in the Budget which, in this case, were shrouded in the usual pre-Budget secrecy—I do not believe that there were any leaks about the corporation tax changes announced in the Budget—and set aside any public discussion about the effects on industry and commerce generally. If the Government had done what they said, more sensible changes might have been introduced.
The Financial Secretary pointed out that new clause 8 would be rather expensive, and that may be the case. As the hon. Gentleman knows, the purpose of introducing such a new clause is to give us an opportunity to look critically at the Government's changes. We want to make it clear in our comments on phasing out capital allowances that we believe that companies should pay their fair share of taxation and make a proper contribution to total revenue. As the hon. Gentleman also knows, since 1970


that contribution from corporation taxation has been declining and is now about 5 per cent. Since 1979 that percentage has varied a little from year to year.
It might well be the case that companies should pay a larger share of taxation to total revenue, but we should ensure that investment, especially essential capital investment, is not discouraged by any taxation change. We want to take two sides of the coin into account. The Opposition believe that companies should be properly taxed, that there should not be ways of avoiding taxation, that companies should contribute to total tax revenue and that too much of the burden of taxation should not fall on individual taxpayers paying taxation from their earned income either directly or indirectly through VAT. At the same time, we do not wish to discourage investment. That is a major criticism of phasing out capital allowances and reducing the nominal rate of corporation tax.
Criticisms have been made not only by the Institute for Fiscal Studies but by stockbroking firms, some of which pointed out that the rate of return on investment must be considerably higher for it to be worthwhile for capital investment to occur. In April 1984, the stockbroking firm, W. Greenwell and Co., said that it was particularly concerned about
the squeeze on corporate liquidity in 1985 to 1987 when total capital allowances fall away rapidly with the abolition of the first-year allowance.
Greenwell agrees with the point made by the Financial
Secretary. The firm said:
by the early 1990s net cash flow should be healthier than they were pre-Budget.
That is a long way off, and by then the economic position could have changed considerably. We are not in a position to forecast with any degree of certainty what will happen in this regard. Others in the City have made that criticism also. They have forcefully reiterated the point made by the Institute for Fiscal Studies — the burden wil fall especially on the manufacturing and distribution industries.
The Financial Secretary attempted to answer the institute's criticisms by suggesting that the companies it chose were somehow unrepresentative. About 4,000 companies were surveyed, involved mainly in manufacturing and distribution. Many of those 4,000 companies were large organisations. I do not believe that the hon. Gentleman's argument showed that that was not a suitable sample. It is a representative sample of the major and most important part of our economy. There is a predominance of large companies in manufacturing, and it is important to examine what will happen to them. Therefore, it is entirely unfair to suggest that the institute selected much too restricted a range and that in some way that undermines all its comments, especially when they are supported strongly in the City.
The fact is that companies with high investment related to their profits will be penalised at a time when there has been a rapid decline in manufacturing investment. In spite of the optimistic forecasts quoted each year, when, for example, the Confederation of British Industry says, as it did earlier this year, that manufacturing investment will increase by 7 per cent., the fact is that investment in manufacturing industry has fallen by 42 per cent. since 1979. It is against that massive drop in manufacturing investment that we must look at the changes that have been made.
Supposedly, jobs will be created through companies being persuaded to substitute labour for capital. However, there is no guarantee that that will happen. For example, Alan Clements of Imperial Chemical Industries said that he very much doubted
that the tax changes will encourage us to employ more men and less machines.
These tax changes will strike particularly hard at capital-intensive firms and shift the corporate tax burden from labour-intensive to capital-intensive firms. In the main, it will be shifted from service to manufacturing industries. The institute argues that the tax burden could go up to 35 per cent. and that companies could pay a much higher rate of taxation by 1986.
Some companies will benefit from the changes —companies with a large overseas content such as Rio Tinto-Zinc. Such companies will pay extra tax on repatriated profits less often because they will be able to take advantage of the rate paid abroad while the withdrawal of capital allowances here is maintained. Therefore, if companies such as Rio Tinto-Zinc are to benefit from the tax changes because of their large overseas content, that is a little puzzling. I am not sure whether the Government can make up ther mind whether they love or hate Rio Tinto-Zinc. The Financial Secretary might tell us exactly what their attitude is.
The companies that will be particularly hard hit are those that invest in advanced electronic components. The justification for what the Chancellor has done is that it makes sense to substitute labour for capital. What does that mean? It cannot be true of high technology products such as advanced electronic components, some of which cannot be made manually, yet which are absolutely essential if we are to maintain competitive standards of quality and reliability. We also need continued investment in industry to update it by the use of such electronic equipment. It cannot be tested or manufactured manually. It has to be produced by other sorts of equipment and subjected to automatic tests, with automatic electronic inspection and test equipment.
The Government are making it much harder for such industries to invest. The encouragement to invest in high technology will be removed by the change in the basis of corporation tax at a time when we face increasing competition from abroad. For example, France and West Germany substantially support their microelectronic industries. At present, the Government have in place a scheme to support microelectronics amounting to about £120 million, but it will not be sufficient to make up for the withdrawal of capital allowances. We might lose out in competition with France, Germany, America and Japan because of the tax changes.
For example, investment in the Scottish computer industry was built up as a result of favourable capital allowances. If that industry is to be maintained in an area that particularly needs jobs, we must be able to offer the same concessions that are offered abroad. France and West Germany are prepared to move into the vacuum left by Britain and to entice high-growth computer companies to leave Scotland by advertising the support that they give.
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The claims that the institute has made about the future of the corporation tax system introduced in the Budget depend, as the Financial Secretary said, on assuming that the rate of inflation is 7 per cent. in 1986, 1987 and


thereafter. In saying that, the institute could properly appeal to some of the economic forecasts made earlier this month and in June that put the rate of inflation at over 6 per cent. and nearing 7 percent. in 1987. We have just had news today that the interest rate has gone up to 12 per cent., with the possibility of the mortgage interest rate going up to 13 per cent. on Friday. I do not know whether that will happen. Obviously, that rise will have an impact on inflation. If interest rates continue to rise, as is likely following the impact of American interest rates, the rate of inflation might easily go up to 7 per cent., on which the institute's assumption depends.
The Chancellor replied to the institute by saying that currently the rate of inflation is 5 per cent. and the Government are determined to reduce that figure still further. However, that is all that he said in reply to the institute earlier this month. That is odd because it seems that the Chancellor was suddenly overcome, rather unusually for him, with a fit of modesty. He does not usually make modest claims about his plans for the future. Such modesty did not affect him in June when he delivered the Mais Lecture, and spoke about the Government's commitment to a further reduction of inflation. He said that since 1979
low levels of inflation have been the norm—as indeed they are throughout the industrialised world. Stable prices are a blessed condition, but one that we in this country have not experienced other than very fleetingly for 50 years.
To achieve stable prices thus implies fighting and changing the culture and the psychology of two generations. That cannot be achieved overnight. But let there be no doubt that that is our goal.
In other words, the Chancellor was preparing to announce that he wanted to reach the "blessed condition" of a zero rate of inflation. That was his goal. However, when he replied to the institute he was still stuck with the 5 per cent. rate of inflation. That makes one doubtful about the future and makes one feel more confident in the institute's analysis that there will be a heavier tax burden on manufacturing industry, the industry on which we shall depend in future.

Mr. Campbell-Savours: Does my hon. Friend accept that, in view of the differences between the Government and the insitute and other outside organisations, many of which the Government pray in aid in debates on other matters, there should be an annual review so that if there is evidence that things are moving in the direction that those bodies suggest and that employment is being affected various aspects in the legislation can be reconsidered and perhaps reversed?

Dr. McDonald: My hon. Friend makes a very sensible suggestion. As inflation is likely to rise and manufacturing companies are likely to be hard hit by the changes in corporation tax, not just employment but the entire economy will be affected, so it is vital that we re-examine the position, especially after 1986 and 1987, to see what the impact has been.
Underlying the Chancellor's proposals is a clear expression of hostility to manufacturing industry. He wants to switch the benefits from the manufacturing sector to the service sector because he sees no real future or contribution for manufacturing industry. It comes out clearly time and again in his comments on the future of the balance of payments or the development of the economy. He always stresses the importance of oil and of invisible earnings from the City and fails to mention manufacturing

industry, which has been systematically destroyed by the Conservatives in the past five years. The Chancellor sees no future for manufacturing industry. He does not believe that it will be important in the creation of wealth for this country in the future. He expects oil to solve all the problems, even indulging in propaganda suggesting that there will be no decline in oil revenues and exports from 1986 until new fields are opened up in the rnid-1990s. The Chancellor's lack of concern for manufacturing industry has given rise to ill-considered changes, introduced without any consultation with the companies likely to be affected. Indeed, the Government have already had to reconsider their proposals and improve them by means of the new clause.

Sir William Clark: I am sure that the whole House is grateful for the opportunity to debate the changes in capital allowances. My hon. Friend the Financial Secretary will recollect that when clause 57 was discussed in Committee of the whole House the debate was extremely thinly attended, so it is essential that we go into the implications of the changes in more detail.
The hon. Member for Thurrock (Dr. McDonald) did not really address herself to the changes in the capital allowances but made a Second Reading speech about inflation, the Institute for Fiscal Studies, and so forth. Her allegation that the Government are not interested in manufacturing industry is disgraceful. She should bear in mind the fact that manufacturing industry, especially heavy industry, has been subject to disruptive and often frivolous strikes which in some cases have priced us out of world markets.

Mr. Budgen: My hon. Friend refers to pricing ourselves out of world markets. Presumably he welcomes the fall in the sterling exchange rate, which must have the effect of pricing many of our fellow citizens back into work.

Sir William Clark: I agree with my hon. Friend, but I was dealing with capital allowances, not with the value of the pound. If the value of sterling falls, our exports naturally become more attractive overseas. My hon. Friend will be the first to admit, however, that the cost of our imports rises. It is a Box and Cox situation. I am sure that my hon. Friend does not mean this, but the logic of his argument is that we should have an exchange rate of just $1 to the pound so that we can export even more—but what will be the impact on imports?
A new phrase—"fiscal neutrality"—has crept into our economic jargon, but we should not become too phobic about it. At one time, the "in" concept was indexation, but in many instances indexation has been a curse and for a long time it has concealed the weakness of our economy because it has shielded the public from the effects of inflation. In introducing the Budget, my right hon. Friend the Chancellor said that capital allowances were aggravating unemployment in manufacturing industry. Industrialists buy new machines to reduce unit costs, which are determined to a large extent by the number of people employed. Some of us have argued that allowances should not be taken away from manufacturing industry but that help should be given to the generally more labour-intensive service sector.
When I first saw the new clause yesterday, I could not make head or tail of it. It was so complicated that it appeared to be gobbledegook. I consulted two tax experts,


but neither could understand it. In the end, I had to get on to the Inland Revenue to find out what it meant. My hon. Friend the Financial Secretary has now explained how the new clause will operate and it is clear that it will help not just shipping but all industry. I suggested straight-line depreciation for the shipping industry. We must certainly do something for that industry because our merchant fleet is constantly diminishing and we must not do anything to accelerate that process. The provision that the Government intend to bring in next year for free depreciation for ships will help cash flow, but that is all it will do. In the long term, capital allowances cost the Exchequer nothing. It is merely a question of cash flow, whether it be in shipping or any other industry.
Amendment 189 defines the date on which one is deemed to have paid for capital equipment when one is given the allowance. There is no difficulty there. In normal accountancy procedure, the date on which one becomes legally liable to pay for something is the date from which one should receive one's capital allowance. The fact that one may receive 20 or 30 days credit is immaterial. If a company told the Inland Revenue that it had made some sales but had not yet received the money and that therefore the amount would not be shown in that year's accounts, the Revenue would say that, as soon as the money was available, it must appear in the accounts. The same principle must apply to expenditure, whether capital or revenue.
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My hon. Friend said that he thought there were some loopholes in this area. In all sincerity, I must say that I believe that the Revenue often becomes paranoid about the taxpayers. It is convinced that everyone is going to use some loophole or other. It would therefore prefer to do nothing to alleviate the tax burden, just in case someone should get through a loophole.
My hon. Friend knows that I do not entirely agree with the changes to capital allowances, although I welcome the reduction in corporation tax. Having some experience in business and in connection with capital equipment, however, I know that companies fix their capital programmes two or three years in advance. Consequently, a sudden reduction to 75 per cent. and then 50 per cent. will be a problem for them. Industry should have been given some notice. That is why I have suggested in amendment No. 47 a postponement for one year. That would enable companies to gear themselves up to the fact that the figure was to be only 75 per cent.
My hon. Friend says that we must not give a tax subsidy to industry. The capital allowance is not a subsidy. The problem is one of cash flow and the deferment of the payment of tax.
As far as the writing-down allowance is concerned, the period of eight years and the reduction to 10 per cent., this is a system of balancing allowances and charges. There is no administrative difficulty in having a straight line. If 25 per cent. each year is too generous, it could be 20 per cent. or 15 per cent., but the writing-down allowance is somewhat hard on industry.
My hon. Friend spent some time discussing shipping. The shipping industry will welcome the slight alleviation of £25 million plus £30 million in the first year. That is a help. However, my hon. Friend did not mention the film

industry. I thought that that industry was to benefit from capital allowances. Perhaps there will be a later amendment on that point.
In essence, I accept my hon. Friend's arguments. I understand his judgment about a reduction in corporation tax and the withdrawal or withholding of capital allowances. It is a question of judgment, but we could have given industry far more notice. My fear is that there will be a rush to invest this year. Indeed, capital investment in industry this year has accelerated already, and I fear that it will slow down next year and in the year after that. I hope that my hon. Friend will not close his mind to the fact that there will be another Budget next year. If it is thought then that capital investment is declining, we should reconsider at that point whether the figure should be 50 per cent. next year or whether we should retain the 75 per cent. for an extra year.

Mr. Wainwright: I hope that the hon. Member for Croydon, South (Sir W. Clark) will not lose much sleep over his fear of a Government passion for fiscal neutrality ravaging our tax statutes, because that fashion, proclaimed in the Budget, seems to have evaporated already. The Budget itself introduced new distortions into the tax structure. For instance, there was the new share option incentive. By the time the Chancellor appeared before the Treasury and Civil Service Committee, he was backtracking hard about the distortions and saying that he had no intention of pursuing distortions throughout the taxation system. He seems to have had enough of dealing with distortions and no doubt will produce some new fashion for next year's Budget.
In spite of the bizarre way in which new clause 34 has been presented—being amended as it was presented to the House — Liberal Members welcome it as far as it goes. However, it shows that the Government, and especially the Treasury, are paying a high price for having left vacant for 12 months the key post of head of the Government accountancy services. If someone had been appointed to that post and been in place when the proposals were drawn up, he would have pointed out—off the top of his head—the need for a measure such as has now been presented to us at the last minute. Incidentally, the House might like to consider appointing a head of Labour Opposition accountancy services, too—but it would be out of order for me to pursue that idea.
The greatest impudence in the sermons we have heard from the Government about capital allowances is the idea that it has been wrong in the past for the taxation system to contain incentives for capital investment. There has never been as pressing and immediate an incentive to reckless capital investment as is contained in this Bill. The Government are telling firms that if they get cracking with their capital investment and do not spend much time looking at the details, they can have their first-year allowances. But if they give the investment plan mature consideration and travel round the world to inspect different plants, they will be too late and will miss the first-year allowances. A synthetic boom in stupid and shortsighted capital investment will be launched by the Bill. The Financial Secretary should acknowledge the truth of that when he preaches about the wickedness of tax incentives—and he does so on the basis of out-of-date information which goes no further than 1980.
One of the gravest accusations against the Government's economic policy is that it has brought about


a lamentable decline in investment in the manufacturing industries. I wholly agree with the hon. Member for Thurrock (Dr. McDonald) that investment in manufacturing industry has declined by such substantial proportions in the past three or four years that there is real cause for alarm.
New clause 31 was tabled by my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) and myself on behalf of Liberal Members. Our case is that, in order to obtain—for effect—a seductive new low rate of corporation tax on Budget day, the Chancellor was thereby obliged to do two very unwholesome things. First, he made manufacturing companies with large capital assets cook their books in respect of their taxable profits so that the new rate of corporation tax could be financed. Secondly, it involved the pretence—which must have become wholly threadbare with a two-point hike in interest rates announced today and the pound dropping through the floor—that an annual inflation rate of no more than 5 per cent. is now a firm feature of our system and that there is no risk of inflation rising above that. Once those two cheeky sleight-of-hand tricks are removed, there is no justification for the reversion to a depreciation rate for tax purposes of only 25 per cent. on the reducing balance.
I am arguing not for incentives for capital investment, but that the depreciation rates allowable for tax purposes should be as close as possible to commercial and industrial reality. A 25 per cent. allowance on a reducing balance of an asset is miles away from commercial reality, except in firms that are so old-fashioned that they must be in an almost terminal state. There is a great deal of evidence in that respect.
The Government are cooking their own books in this regard. The Financial Secretary reproduced again today the claim that, under his method of depreciation, capital assets will effectively be written off in eight years because only 10 per cent. of the original cost would be left on the books. By a marvellous conjuring trick, he said that that would be the scrap value. If he had had a head of Government accountancy services, he would have been told that, in many cases, manufacturing firms have to pay someone to take the obsolete item away. There is no scrap value in intricate machinery that is made largely of plastic and other synthetic materials. A contractor has to be paid to come with his lorry or articulated truck to take the things away. The idea that assets finish their time in a company with a firm residual value of 10 per cent. that can be obtained on the market is nonsense.
Nowhere in his long speech did the Financial Secretary face the fact that, during a period of continued inflation —even if it is limited to 5 per cent., which I doubt—companies are entitled to have taken into consideration the replacement cost of assets that are wearing out. I find it difficult to keep patience with people who do not realise that someone who uses a motor vehicle fairly heavily in a business in 1984 should not kid himself that he is merely incurring the cost of the motor vehicle when it was purchased. He is wearing out the motor vehicle at the present replacement value of such vehicles. The Financial Secretary, other Treasury Ministers and the Bill totally ignore that consideration.
In regard to taking inflation into account, I am willing to give the Financial Secretary an enormous benefit of the doubt by assuming that, for the next eight years, there will be an annual inflation rate of only 3 per cent. I do not believe for a moment that that will happen, but, in order

not to be accused of over-egging the pudding, I shall assume that it will be 3 per cent. Taking such a rate of inflation into account and talking in real terms, under the Government's system of depreciation, 17 per cent. o f the replacement cost will still be left on the books after eight years depreciation. The Government's system is not one of fair, reasonable and realistic depreciation. Furthermore, the Financial Secretary has simply glided over the appalling unfairness of the Government's scheme to companies which use high technology and whose plant is kept absolutely up-to-date to cope with the Japanese and the Germans. Why should they be landed with this absurd 10 or 12-year write-off when all around the world it is acknowledged in their line of business that such pieces of plant are obsolete within about three or four years?
The answer that the Government gave in Committee is that their scheme applies fairly to
the mix of assets likely to be purchased by the average business".—[Official Report, Standing Committee A, 26 June 1984;, C. 1429.]
Since when has this Government operated to respect the average business? We have always been taught— and we are told twice a week by the Prime Minister at Question Time—that the Government are out to help the thrusting companies that are well above the average and are shining examples to the rest of British industry. When it comes to saving the Treasury money and raking the revenue in from cooked books, we are told that it is quite satisfactory if the scheme fits merely the "average business".
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Perhaps I should say that my observations are not off the top of my very out-of-date accountancy head. They are supported by a remarkable variety of hard-headed business and professional organisations, most of which, I suspect, are in some sympathy with the general thrust of overall Government policy. I merely made it known in a modest way in Accountancy that I was interested in pursuing this matter. Without any further pressure, I have had assurances of support for new clause 31 from the Institute of Cost and Management Accountants, the Institute of Chartered Accountants in England and Wales, the Institute of Taxation, the Engineering Employers' Federation, the National Farmers Union, the 100 Group of Chartered Accountants—to be a member of which people have to be senior directors of really large United Kingdom companies—the Institute of Directors, the Association of European Machine Tool Merchants and, from my region, the Leeds chamber of commerce and the Kirklees and Wakefield chamber of commerce. I have also received supporting letters from a considerable number of individual practising accountants. Nobody could claim that that list is weighted in favour of people who just use computers, lasers, or microelectronics. It represents a reasonable cross-section of manufacturing and service industries.
It is necessary for me to try to deal—as I believe that I can—with some of the Government's arguments when the matter was debated in Standing Committee at the instance of my hon. Friend the Member for Roxburgh and Berwickshire. We regard our proposal not as a distortion or as an incentive, but as part of commercial reality. I hope that the Financial Secretary will ponder on the fact that, before about 1945, we had a first-class Inland Revenue service which allowed different rates of depreciation for different types of asset. That was regarded as fair by the commercial community and it seemed to get on without


any great difficulty. I am not prepared to concede that we necessarily need to have just one overall rate of depreciation for all plant that is used by industry.
Moreover, in Committee, the Financial Secretary accused the Liberals of moving away from actual commercial depreciation. I should like to take the example of a few major companies, which are household names and which, for all I know, are generous subscribers to the Conservative party. All of Plessey's plant is depreciated by our straight-line method over three to 10 years. All of ICL's plant is depreciated on a straight-line basis at rates between three and 10 years. Guest, Keen and Nettlefolds plc computer department writes off all of its installations in five years, using the straight-line method. With the patchy recovery in the economy, some manufacturing firms use their plant on double or treble shifts, so they are using it to two or three times more intensively than the Financial Secretary's "average business" would dream of doing. Are they to have no compensation for the fact that they obviously wear out their machinery twice or thrice as fast as normal?
I must deal with another hare that the Financial Secretary started in Committee. He said that our system —the straight-line basis—would be far too complicated for industry to cope with. That is the most enormous red herring. The 100 Group of Chartered Accountants has assured me in some detail — with which I shall not burden the House—that there would be no difficulty in operating a pooling system under the straight-line method. The Institute of Chartered Accountants in England and Wales is recommending the 25 per cent. straight-line method, saying that it is perfectly capable of being administered. In fact, it must be, because sensible companies operate the straight-line method in their own books and regard the reducing balance method as a piece of mumbo-jumbo from the distant past which is operated by people who use only an abacus or bead frame instead of proper calculators.
In Standing Committee, the Financial Secretary, despairing of being sufficiently eloquent to persuade the entire Committee, produced a tract in the manner of street preachers, patent medicine vendors or suchlike who want people to read the virtues of their product rather than to take the operator's word for it. This tract was "Economic Progress Report No. 167", published by the Treasury. Of course, everyone's hackles rise when these things are called economic progress reports, because for the last four years they should have been called economic decline reports, with a special urgent edition published today in relation to interest rates.
On page 3 of this economic progress report, printed on tasteful blue paper, there is a chart No. 5 which purports to set out the various competitor countries' rates of depreciation. There is no key to the chart. It is not explained why some parts of it are shaded and other parts are blue. Its purpose apparently is to show that the rate of writing-down allowances for plant and machinery in the United Kingdom will, when the Bill becomes law, be broadly comparable with those overseas. I do not know what that is supposed to mean. Of course rates of depreciation can be comparable. It is perfectly possible, in other words, to compare rates of depreciation in one

country with those in another. I do not think that it needs a Treasury paper to say that these things can be comparable and are suitable and apt to be compared with one another.
However, I suspect that what the paper was trying to say was that United Kingdom rates would be as good as the rates of most other countries, even though it did not succeed in saying that. In fact, this is a deception. It says—and the Financial Secretary repeated it this afternoon— that in France assets can be written off for tax over five to 10 years. The Financial Secretary did not tell the House that in France it is permissible to apply a replacement cost index to the value of plant that one is writing off. The French system, to its great credit, takes account of inflation instead of pretending that inflation will cease to exist. I could go on with these meretricious comparisons. They show, even at face value, that three of our keenest competitors abroad have more effective and realistic rates of depreciation than we will have in this country.
I believe that there is everything to be said for a four-year straight-line write-off, unless the Government are willing to become even more realistic and to have two rates of depreciation, at least, for different types of plant—for instance, plant with moving and operating parts and plant which is static in every sense. Unless the Government come forward with some such proposal, I shall recommend my right hon. and hon. Friends to support new clause 31 in the Lobby.

Mr. Neil Hamilton: The problem with which new clause 17, which stands in my name on the Amendment Paper, is concerned was reported in The Times in February this year, and it shows up some of the deficiencies of the present capital allowances situation. Although initial allowances will be phased out in the course of the next few years, if no change is made in the legislation, the problem will still exist because it also concerns writing-down allowances which will continue.
I am grateful to my hon. Friend the Financial Secretary for the encouraging remarks that he made in his speech, which I am sure will be widely welcomed throughout industry. It might be useful if I were to spend a short time talking about the problem that needs to be resolved. I am sure that we can return to this matter next year in rather more detail.
The problem that arises is to be found in section 41 of the Finance Act 1971. Briefly, the section provides that initial allowances are available where a person carries on a trade and incurs capital expenditure on the provision of plant or machinery for the purposes of his trade, but the allowance is obtainable only if the plant or machinery belongs to him at some time during the chargeable period relating to the incurring of the expenditure.
The problem has arisen in relation to the word "belonging". In the case of a lessee of a property, it was held in the case of Stokes v. Costain, to which my hon. Friend referred, that only the freeholder, in effect, has that belonging interest. Consequently, the developing company in that case, and of course in many other cases, is unable to obtain the capital allowance. The problem is that nobody else is able to obtain the capital allowance either. Therefore, there is a gap in the system. Thus, I welcome very much what my hon. Friend said.
I will end with a few words from Lord Justice Fox's judgment in Stokes v. Costain. In spite of having had to hold that the initial allowances were not available to the taxpayer in that case, he said that he could not
regard the state of the law as satisfactory. The purpose of the statutory provisions is evidently to encourage investment in machinery and plant. In this case very large sums were expended on such investment but, under the enactment as it stands, nobody will receive a tax allowance in respect of it. The freeholder will not because the freeholder did not incur the expenditure and is not carrying on the trade. And the taxpayer company will not because the items did not belong to it. The Crown is unable to suggest any policy reason why a person in the position of the taxpayer company should be refused relief. It is to be hoped that the ambit of the legislation in this respect will be reconsidered.
I therefore very much welcome the reconsideration that my hon. Friend promises, which I think is sufficient evidence of the flexibility of Ministers in the course of the Bill to respond to good ideas which are put forward, at least sometimes, by their hon. Friends. I welcome what my hon. Friend said, and I am sure that it will be welcomed generally throughout industry.

Mr. Fisher: I apologise to the Financial Secretary and the House for having missed part of the debate. I believe that this may be the most important debate that the Committee will have tonight, and I believe that it is the most wide-reaching part of the Finance Bill.
The changes that the Chancellor and the Government propose to make, whether or not they are correct, will affect the future of investment in industry. They will affect manufacturing industry in particular and will decide whether it declines and continues to decline or whether it manages to reflate, recover and form a manufacturing industrial base in the country that can provide employment. At risk is not only our industrial future and future investment but the question of future jobs and employment and thus, indeed, the economic future of the country.
In the proposal that the Chancellor put forward in his statement to the House, I felt that he was guided more by his desire to establish a reforming reputation in proposing these reforms than by a well-considered attack on, or reform of, the corporate tax structure. I shall deal later with the tax structure, but I think that probably the whole House will recognise the inadequacies and weaknesses of the corporate tax structure in a number of ways. Reform in itself was therefore welcomed on both sides of the House.
Opposition Members feel that this reform has been ill-considered and has been pushed through. Indeed, the very existence of manuscript amendments, even tonight, after the longest Standing Committee stage for a Bill in the history of the House, indicates that the Government are still having to reconsider and adapt their recommendations because they have not got it right. That has serious implications for everybody.
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To his credit, the Financial Secretary has worked extremely hard in Committee and has defended his corner —often a very ill-advised and ill-considered corner—admirably. He was not at his best in this debate. He produced the familiar case, the one that he made both in Committee and, as far as I can recall, in the Committee of the whole House earlier, about the corporate tax purity of the Chancellor's recommendations. He usually puts that case with more energy, conviction and enthusiasm. Tonight, there was a danger that he would rival the

whistling wizard from Wrexham and become the mumbling Minister as he went through his brief. He could not produce a single new argument or forceful item in favour of those changes. He confined himself to details of the changes. That was fair enough, because undoubtedly they were difficult to understand on paper, and I was grateful to him for taking us steadily and slowly through the details, although once he had explained them and teased them out it became apparent that there were distinct weaknesses.
For example, if I correctly understood what the Financial Secretary said on the timing of the writing-down allowances, he appeared to be effectively equalising them with first-year allowances by redefining the time condition of writing-down allowances. There is a potential abuse because of the date at which expenditure would be incurred—a problem that he recognised, but to which he did not fully address himself. I do not know what plans he has to guard against that, or to monitor it if it happens, but for a Chancellor whose great claim in the Budget Statement was that he would resolve abuses and destroy anomalies—which hon. Members on both sides of the House would welcome—to introduce a change that even the Financial Secretary recognises has the potential for abuse is not satisfactory.

Mr. Moore: I did not accept the thrust of that point. I said that I would consider it with great care, but it is not part of the new procedure introduced by the amendments.

Mr. Fisher: I am grateful to the Financial Secretary, and somewhat relieved. There is considerable potential for abuse in the point about the date at which an expenditure was confirmed.
The first part of new clause 34 is concerned with when people may disclaim or defer writing-down allowances. There is a possible loophole in this. By allowing, and even encouraging, people to defer writing-down allowances, the new clause appears to be a manipulation of the tax system. That is what the Government said that they were seeking to avoid. That is an unsatisfactory element in the new clause.
A later element of the new clause is the transitional help in the change from the old to the new assets. This begs a question that the Financial Secretary should answer. What happens after the transitional period? Is not the result vulnerable to the criticism that the Opposition have made in Committee, that there will be a disincentive to invest? The Financial Secretary referred particularly to the fact that 50 per cent. of the impact of this change would affect shipping. He was on weak ground on that point. We welcome the fact that the shipping industry, and in particular the fishing industry, will be reprieved in this way, but in accepting that there could be exceptions, such as shipping, the Financial Secretary is driving a carriage through the Chancellor's claim that he is correcting anomalies. Whatever he may say about the strategic grounds of the defence and maritime considerations, special concessions have been made for fishing and for shipping, and so the strength of the Government's case begins to disappear over the horizon.
In many ways the case for corporate tax purity that the Financial Secretary is recommending to the House is both naive and crude, even if it is well-intentioned. He is proposing an eight-year write-off period. He knows very well that some assets, such as ships, have a far slower


depreciation period, whereas others, such as computers, have a far faster one. As the hon. Member for Come Valley (Mr. Wainwright) said, having only one system and one period of write-off is not satisfactory, as it is not flexible enough to deal with the multitude of different circumstances that arise.
Similarly, the idea of averaging is crude in the extreme. The Financial Secretary recommended this to the House because he said that it was a more simple tax system, but there is a danger, with the form of averaging that he recommends and with the single write-off system, that he is presenting the House not with a more simple system but with a more simplistic one.
The Government recommend that the House does not accept new clause 8, because they wish to encourage risk-taking, to reward success and to allow market forces to dictate investment in industry. That is the Government's philosophy, and that is what is dragging manufacturing industry in particular, and industry as a whole, into a further decline. The Financial Secretary said that tax incentives distort investment decisions, and Labour Members would agree, but do we need to encourage investment? It is to that that the Financial Secretary must address himself. If he is simply abandoning manufacturing industry to market forces in investment, he is saying that in his opinion it is not a problem for the Government. They are not involved with the problem of whether manufacturing industry or industry as a whole is sufficiently well invested.
However, the Labour party thinks that this is a prime issue, to which the Government should address themselves. They must be responsible for the conditions of investment in manufacturing industry, and industry as a whole. For them to abandon their responsibility and say that it is not a concern for them, and that investment must find its own level, does not augur well for investment in industry, and therefore for jobs.
Many young people leaving school this summer are not likely to get jobs. The Government are saying to them that they do not mind, because they do not consider it to be their responsibility to ensure that there is investment in local industry or that there is new potential for jobs in industry. They say that is solely a matter for the industries concerned, and it is for market forces to condition those industries. It is up to such forces to decide whether those young people get a job and it is no concern of the Government. If young people realised that, they would be horrified by the Government's stance. Investment must be a Government responsibility, and it must be a matter of concern to them that the level of investment is declining, and shows every sign of continuing to decline in spite of some of the figures that both the CBI and the Department of Trade and Industry are putting out.
The thrust of what the Financial Secretary and the Chancellor have been saying concerns reform. Labour Members find the corporate tax system as it has worked over the past few years extremely unsatisfactory. It is not effective. It is not a tax on profits. It is honoured more in the breach than the observance. Indeed, 50 per cent. of industries in this country do not pay mainstream corporation tax. The Financial Secretary has not brought that to the attention of the House, although he is very familiar with that fact. It should be of grave concern to any Government.
The declining revenue base of corporation tax was becoming something of a national scandal. In 1967 the corporate tax system provided 7·2 per cent. of all tax revenue for the Government, but in 1982 that figure had been reduced to 2·7 per cent. The level of corporation tax disastrously failed to provide tax revenue for the Government. That shows that companies in this country are not contributing to the tax base in the way that they should.
The Financial Secretary and the Chancellor, in recommending reforms of corporation tax, could undoubtedly count on support from Labour Members. Whether corporation tax should be reformed is not at issue, but how and when that reform can be introduced. Corporation tax is failing because it is too complicated and has about 10 categories of physical assets that are allowed for through allowances, exemptions or special cases. It was only too easy to avoid, as the banks showed when they jumped into the breach in the leasing business and found that they could enjoy benefits. Hon. Members on both sides of the House would agree that there was far too much differentiation between the companies that could benefit from having plant and machinery eligible for allowances, and those that did not because their assets were more in monetary holdings.
Although there is an agreement throughout the House in favour of reform, and, indeed, throughout industry and in the financial world, it is not for this reform. As my hon. Friend the Member for Thurrock (Dr. McDonald) has said, the 1982 Green Paper proposed that there should be discussions and that consensus should be reached.
Could the Financial Secretary, when winding up, tell the House what discussions have taken place and what consensus has been arrived at? Was the 1982 Green Paper used as the basis for discussions? Can the Financial Secretary honestly claim that these reforms of corporation tax come out of the discussions that took place as a result of that Green Paper? Would he admit to the House that these jumped out of the Treasury fully-fledged, so to speak, in the Budget and did not result from counselling, discussion and general canvassing throughout industry and the monetary world?
I am afraid that the Financial Secretary will have to admit that these reforms have not been canvassed and that the CBI and the TUC have not been consulted. Perhaps many hon. Members would consider that to be typical of this Chancellor's approach. Have the possible deficiencies resulting from corporation tax been considered since 1982, and will corporation tax be put on to a corporate tax flow basis? Is that possible? What difficulties have the Treasury identified if a possible tax on cash flow were introduced?
We are being asked to revert to a system similar to that existing in the 1960s. We moved away from that system because we discovered that it discouraged investment and made no allowance for the effects of inflation on corporate profitability or liquidity. Can the Financial Secretary tell the House that this system is significantly different from the corporate tax system that existed in the 1960s, and explain how it will not have a discouraging effect after the transitional period of investment? How will it make allowance for the effect of inflation on corporate profitability and liquidity?
I do not believe that the system will have any effect. The Minister will effectively be saying that the Government are going back to the system of corporate


taxation that existed in the 1950s and the 1960s, which has already proved to be woefully inadequate to meet the needs of this country.

Mr. Campbell-Savours: Does my hon. Friend accept that this is perhaps one of the most important areas of debate? Does he agree that the Minister should have addressed himself to this point? Clearly, the system being introduced existed at one time, but was removed because it was failing. Therefore, the Minister must prove that bringing the matter before the House in this way will not cause the same deficiencies as in the 1960s. I hope that my hon. Friend will press the Minister on this point for a reply.

Mr. Fisher: I am grateful to my hon. Friend for that intervention. I urge the Minister to address himself to that matter and to explain to the House how the system differs from that introduced in the 1960s. I urge the Minister to consider the two areas of discouragement of investment and the effect of inflation on corporate profitability and liquidity.

Mr. Maples: Would the hon. Gentleman not agree that the two main reliefs that may be changed, stock relief and capital allowances, were introduced to cope with the problem of inflation and taxation of companies on historic costs, and that the reliefs have nothing to do with the previous tax system? They were introduced as ad hoc measures, largely to cope with a specific problem.

Mr. Fisher: I do not entirely agree with that. There is a certain element of truth in that. The reliefs were introduced to meet the problem of underinvestment in manufacturing industry in the 1950s. Governments of both parties needed to introduce some form of positive tax incentive to persuade private industry to invest. The Heath Administration of the early 1970s chose to reflate the economy and hoped that investment in manufacturing industry would follow. That has not proved to be true. We have always suffered from far too narrow an investment base.

Mr. Campbell-Savours: My hon. Friend should, equally, refer to the debates that took place in the House following the Finance Bills of the 1960s, in which there was a consensus between the parties about the need for change. It was accepted that the existing arrangement was not working. The Minister must address his mind to the fact that the consensus existing at that time is being broken as a result of this arrangement.

Mr. Fisher: I was not in the House in the 1960s, so I must take the word of other hon. Members that those debates were conducted along those lines. I believe that it was generally recognised in the late 1960s that we were woefully underinvesting and that industry desperately needed some form of incentive to invest. If it was true then, it is even more true now.
As my hon. Friend said, between 1979 and 1982 investment in manufacturing industry fell by one third. If we include leasing, the figure reaches 42 per cent. Even after removing the leasing element, investment has fallen by one third. Now, manufacturing industry accounts for only 24 per cent. of total industrial investment. Manufacturing investment fell by 5 per cent. in 1983. Fixed investment accounts for only 15 per cent. of total GDP, whereas 10 years ago it was 20 per cent. of GDP.
From that, even when incentives existed, we can;see that investment was declining and the incentives had no effect in staunching the flow away from investment. The Government are trying to take away even this small form of investment incentive. I fear the consequences greatly.
The Chancellor may have been reassured that this is right moment to introduce the measure, based on CBI forecasts that investment in manufacturing industry will increase in 1984 by 5 per cent. Indeed, the DTI has predicted that it will rise by 9 per cent., which is even more encouraging. However, most non-partisan and objective commentators say that investment in manufacturing industry is likely to increase by only 2 per cent. or 3 per cent., this year, or at the most 4 per cent. Indeed, if it reaches 4 per cent., most people would consider that to be a satisfactory result. Even if the DTI is right, such an increase would add only half per cent. maximum to the growth of GDP. That does not address the problem at all.
The Minister says that we are going over to a market system. That would make sense, even to the Tories, if industrial investment was strong. There might then be a case for saying, "We have good industrial investment, let us go on to a market-based system." However, the reverse is manifestly true. As the figures show, industrial investment is woefully weak, and it is unsatisfactory to choose this moment to push this feeble child of investment into an unfriendly world.
In his evidence to the Treasury and Civil Service Committee, and in his speech to the House, the Chancellor claimed that these proposals would accelerate investment. He did not amplify that. I do not know whether the Financial Secretary goes along with that, but in their evidence to the Select Committee the Treasury officials did not do so. When asked
The acceleration is purely a response to the phasing mechanism?",
the Treasury officials answered:
Yes.
When asked:
Could you give us some figures for the acceleration you see as a result of the phasing in or phasing out?",
the Treasury official said:
It is very difficult to estimate that. We can give you some figures of the incentive to accelerate, the reduction in the cost of investment if it is carried out a year earlier.
But when asked:
If you did have some figures to give to the Chancellor, if he is going to make a categorical statement like that .… he must have based it on the figures you gave him.",
the Treasury official replied:
No, the statement can be based on the expectation, or more or less knowledge, that there will be an incentive to accelerate and the assumption there that a number of firms would take advantage of it.
Therefore, the Chancellor's claim that there would be an acceleration appears, on the basis of the Treasury official's evidence, to be based not on the facts given to him but on expectations that his policy would work. That is too unsure a base on which to change the fundamental basis of industrial investment.
After the transitional period I fear that investment—particularly investment in manufacturing industry—will fall faster and that we shall all suffer as a result. If that is so, these are not a couple of insignificant new clauses, because they will prejudice the future for many people who do not have jobs, who desperately want jobs and who want to contribute to the future of this country. By prejudicing the investment base of manufacturing industry


the new clauses will prejudice the future of those industries, and that will have a serious effect on employment.
A major responsibility in this area falls on the Government. They ought to recognise that they cannot leave this solely to market forces. They ought to take control, accept responsibility and recognise that by returning to a system which was found wanting in the 1960s they are not addressing themselves to the problem of a rational and coherent form of corporation tax. That is what the House expects of the Government, but this new clause does not help.

Sir Geoffrey Finsberg: I wish to say a few words in my capacity as chairman of the all-party retail group, because for some time we have been disturbed about the question raised in new clause 17. The Financial Secretary's response clearly shows that he has taken on board the real problems which the Costain case and several others brought to light.
The real problem which the retail trade has experienced has been uncertainty about the legal position on capital allowances for machinery and plant on lease, particularly where there are funded developments. If next year the effect of the new clause will make it possible for capital allowances to be available to anyone who takes a grant or assignment at a premium on leasehold premises containing plant, which is landlord's fixtures, that will be particularly helpful. It will ensure that a tenant or lessee is placed in the same position as a freeholder in relation to balancing charges and allowances.
From the correspondence that I have had with the Minister, I appreciate that the uncertainty of this situation is a lawyer's paradise. It is right for the Minister to say that he will need time to work this out.
Far from the comments of the hon. Member for Thurrock (Dr. McDonald) and the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), the open-mindedness of the Government in considering points as they arise has in many cases caused the tabling of new clauses and even manuscript amendments. I can just imagine the howls from the hon. Lady if, after Royal Assent, the Minister said, "I did not want to introduce a manuscript amendment on Report because it would not be quite fair." The hon. Member for Thurrock may laugh, but she cannot have it both ways.
The Minister has been extremely fair to the House. He has apologised for doing this, but he need not do so because he has shown that, if these points do arise, he is prepared to look at them as fast as possible.
The Minister referred to the fact that at a later stage this year the Revenue would consult interested parties on the draft rules that would be needed to give effect to his proposals. I ask for two assurances. First, will the Retail Consortium be among those consulted, as it represents the interests of all sections of the retail trade? Secondly, in some way will he make certain that hon. Members who have expressed an interest will be sent copies of the consultation document so that, if necessary, they may contribute to the continuing discussions?
With those brief remarks, I welcome the Minister's helpful attitude.

Mr. Paddy Ashdown: I listened with interest to the remarks of the hon. Member for Hampstead and

Highgate (Sir G. Finsberg), but I hope that he will forgive me if I do not follow that tack, in relation to which he has more expertise than perhaps I shall ever enjoy.
I wish to branch off on the question of capital allowances. I well recall the Chancellor's Budget speech. I was sitting beside my right hon. Friend the Member for Glasgow, Hillhead (Mr. Jenkins). When I heard the Chancellor announce the corporation tax, budgetary allowance and stock relief provisions, I told my right hon. Friend that that was a clever move. I used the word "clever" in its best as well as worst connotations. While it appeared that the Chancellor was giving some tax concessions, I recall that the overall result of his announcement was a further lien on industry.
It is interesting to note that the Financial Secretary has said:
the Chancellor …did not conceal in his Budget speech"—
I would not have gone that far—
that the effect of his stock relief and capital allowance measures and corporation tax changes, taking into account the transitional period, would be some increase in revenue." —[Official Report, 1 May 1984; Vol. 59, c. 275.]
The Financial Secretary admitted that that would not only be during the transitional period. Indeed, later, in reply to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), he was unable to dismiss the suggestion that the overall rate of tax on industry at the end of the transitional period was likely to be higher than it is now.
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It is quite remarkable that the Government are able to say, on the one hand, that they are getting more revenue out of these provisions both within the transitional period and immediately after it, and, on the other, that they can dress them up as being of significant advantage to the business sector as a whole. Where can that revenue come from, except from industry? It can come from no other source. Therefore, the Government, as usual, seem to want to point in both directions at the same time. They want to commend themselves on raising revenue and at the same time do the three-card trick of pretending that those provisions will be useful overall for business.
I can understand the Chancellor of the Exchequer's reasons for introducing the capital allowance and stock relief provisions. Indeed, in many ways I welcome them, in the sense that the capital allowance provisions will hand decision-making back to the board room. Consequently, the managers of industry will be able to make decisions that relate to their judgments about the future, instead of having those decisions shaped by tax provisions or, perhaps, even having them made for them. That must be a welcome move. Therefore, I welcome what lies behind the Government's thinking in moving decision-making away from the Inland Revenue to the board room. That must be a good thing.
The capital allowance provisions before us suffer from three major defects. First, as Conservative Members have said just as forcefully as other hon. Members, they will have a dampening effect on investment and re-equipment. Obviously, at this juncture we do not accept the Government's suggestion that British industry is about to take off. Indeed, today's announcement gives the lie to that. But whether or not one accepts that analysis, it must be in the overall best interests of British industry to reinvest and re-equip, particularly in the high technologies. There can be no doubt that those capital


allowance provisions will have a depressing effect on re-equipment. However, I shall not go into that point in detail, as other hon. Members have covered it.
The second key element concerns the effect on the new technologies, in particular. Indeed, my hon. Friend the Member for Colne Valley (Mr. Wainwright) has already put the case more eloquently than I could. That is the sector in which there is heavy capital investment and rapid turnover in terms of reinvestment in the new technologies. The Government have often said that they want to encourage the new technologies and would like to see our industries, and particularly some of our older and more outdated industries, re-equipped with some of the new technology. Again, the capital allowance provisions must act as a depressant, despite the fact that such reinvestment in British industry is vital.
However, I should like to concentrate briefly on the third element, which is that the corporation tax and capital allowance provisions taken together are discriminatory. When I read the debate on 1 May, I noted that in column 278, in reply to the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), the Financial Secretary made much of the fact that he was seeking to get over the problem of a discriminatory system. However, we now have a highly discriminatory system as between the incorporated and the unincorporated. That important point has not so far been made.
I am sure that Conservative Members recognise, as we do, that there is much that is unincorporated, particularly in the small business sector, that we wish to encourage. I refer to the sole trader or partnership. Although both incorporated and unincorporated will suffer—I use that word advisedly—it is only the incorporated sector that will have the benefit of the corporation tax reduction. That seems to be very discriminatory against a section of our industry that we are, by all accounts, seeking to encourage.
I turn to the likely effect of these provisions on the farming industry and community, which form part of the unincorporated sector of British industry. The overwhelming majority of farm businesses consist of sole traders or partnerships. They will not obtain any benefit from the reductions in corporation tax. I suspect that the Financial Secretary does not need to be reminded of the fact that agriculture is the largest primary industry in Britain after North sea oil. It is a huge investor, and its capital expenditure per head is about the same as that of manufacturing industry.
The National Farmers Union calculates that if the Government's proposals are accepted unamended, the loss of first-year allowances will probably result in an increase in the farming industry's tax liabilities of some £500 million over the next few years. That will obviously reduce investment in agriculture, which will be bad for the industry. As hon. Members know, agriculture is one of the most highly capitalised industries in Britain. Indeed, it has achieved four times the labour productivity of manufacturing industry as a whole, precisely because it has gone in for high capital investment. The benefits to the nation as well as to the industry are obviously great. Therefore, I hope that the Financial Secretary will admit that they are likely to be threatened by the provisions before us.
Farmers claim between one third and one half of all first-year allowances in the unincorporated sector. Therefore, they are very vulnerable. Other sectors, too, on which the farming industry depends, such as road haulage,

are also vulnerable. What makes the provisions worse is that they come at an especially difficult time for the farming industry, as well as perhaps for others in the unincorporated sector. As hon. Members are no doubt aware, farm incomes have fallen. The farming industry is having to face up to restructuring as a result of the reforms of the CAP and, in particular, of what has happened over milk quotas. There is a need to redress the balance of benefits and disadvantages between the incorporated and unincorporated sectors.
I suggest that the farming industry and certain other sectors will be particularly hard hit by the provisions.

Mr. Maples: rose—

Mr. Ashdown: I am drawing my remarks to a close, so I shall not give way. I hope that the hon. Gentleman will forgive me, but I know that other hon. Members wish to speak.
I support new clause 31, which provides a more realistic system for writing off capital assets. On that basis, I commend it to the House, together with the other amendments that may overcome some of the worst effects of the Government's proposals in their new clause.

Mr. Nicholas Winterton: The hon. Members for Yeovil (Mr. Ashdown) and for Colne Valley (Mr. Wainwright), who spoke from the Liberal Benches, both made very constructive speeches which will no doubt be properly considered by my hon. Friend the Financial Secretary. I hope that he will give them serious consideration, because both hon. Members are experienced in this matter. The hon. Member for Yeovil referred to the farming industry, and I know that my hon. Friend is aware of my deep concern for the state of the dairy sector as a result of the milk package negotiated in Brussels. However, I shall not pursue the comments made by those hon. Members, other than to say that they merit proper and full consideration.
I thank my hon. Friend the Financial Secretary for meeting a number of the points that I raised with him both directly and through correspondence. Like my hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg), who is sadly no longer in his place, I think that it is unfair and unjust that Opposition Members in all parties should criticise the Treasury Bench for introducing new clauses and even manuscript amendments on Report I believe, rather, that it shows a flexibility that is very necessary where complicated legislation is concerned. Moreover, it shows that the Government are prepared to listen right up to the last moment to representations that are made not only from outside the House but by hon.. Members. That is highly commendable.
I am extremely grateful to my hon. Friend the Financial Secretary for the careful attention that he gave to the views that I expressed on behalf of our industry. Apart from the hon. Member for Yeovil, I believe that I am the first participant in this debate not to have sat on the Finance Committee.

Mr. Campbell-Savours: The hon. Gentleman is well known in the House for being most forthright, clear-minded and courageous. In Standing Committee, there were times when we would have welcomed his presence, At an early date next year the hon. Gentleman should apply to join our notable team. He will be welcome.

Mr. Winterton: The House is full of good humour. I hope that in a few hours' time that humour continues to prevail and that we shall deal with all these complicated matters with expedition.

Mr. Campbell-Savours: The hon. Gentleman is getting worried.

Mr. Winterton: I am not getting worried. I shall refrain from responding to the blandishments of the hon. Member for Workington (Mr. Campbell-Savours). He will appreciate that one can make representations which are heard without taking part in the longest Standing Committee on a Finance Bill in the history of the House.
I made representations to the Financial Secretary about the unintentional injustices in clause 57, particularly about the injustices which would result from the transitional period to 31 March 1986. My hon. Friend has dealt satisfactorily with all the matters to which I drew his attention on behalf of important sections of British industry which employ large numbers of people.
I have deep regard and respect for the hon. Member for Stoke-on-Trent, Central (Mr. Fisher). I share with him, and with the hon. Member for Yeovil (Mr. Ashdown), a deep concern for the manufacturing base of industry. Many of my hon. Friends disagree with me, but I think that it is vital. The service sector cannot survive without a healthy manufacturing base. It cannot create the wealth to produce the necessary services and infrastructure. Manufacturing will always play a vital part in our economy. The condemnation levelled at my hon. Friend by the hon. Member for Stoke-on-Trent, Central, who made a similar speech at least seven times in Standing Committee, is not justified.
I made known to the Financial Secretary my feelings about the many injustices in the Bill. I said that it was inequitable in two respects. First, I said that it placed at a tax and cash flow disadvantage any company needing, for whatever reason, to replace capital assets on a short cycle. Secondly, I argued that Governments of both parties have over a number of years encouraged companies to plan investment on the assumption that replacement assets would be the subject of the same allowances as those which they replaced.
Clause 57, which new clause 34 amends, would have had an adverse effect on companies in three situations. My hon. Friend the Financial Secretary knows, through discussions and correspondence, the three situations. The first is where advances in technology necessitate the replacement of obsolescent — albeit perhaps new —equipment by more sophisticated designs to retain competitiveness and efficiency. That equipment still has a sell-on value for less innovative users. I refer, for example, to electronics, biotechnology, research and development and other equipment in science-based companies.
The second is when the asset is replaced, frequently because a higher than normal performance or safety standard is required, and the asset still has a residual value to other, less exacting users. In his well-delivered description of this complicated new clause, the Financial Secretary referred to motoring schools, road freight and passenger transport companies. The third circumstance is when an asset is lost through accident and the value is fully or nearly recovered by insurance.
In all such cases the clawback on the original capital allowances, plus the lower rate of allowances on the

replacement, would have meant under clause 57 that the effective purchase price of the replacement would be significantly inflated.
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I am surprised to find my hon. Friend the Member for Croydon, South (Sir W. Clark) an ally on this issue, because he is a purist in monetary and economic matters. I am pleased to have his support in relation to the part that capital allowances have played in investment in British industry. It seemed wrong that under clause 57 a company, because it sensibly replaces assets, should be worse off than if it did not.
It would be ridiculous if the only way to avoid the penalty was not to replace plant and equipment until after 31 March 1986, when the anomalies to which I have referred would disappear. That would have been harmful to the economy.
My hon. Friend the Financial Secretary studied the matter carefully with his colleagues on the Treasury Bench and with officials because a cost to the Government is involved and the Government have to find the money from somewhere. New clause 34 meets my reservations about the injustices in clause 57. I am grateful to the Government for introducing a new clause which meets my requirements and satisfies those who have made representations to me. Far from being disappointed, I believe that industry in many respects was encouraged by the Budget and the Finance Bill.
I admit that I should like some provisions in the Finance Bill to be changed. I am worried about the phasing-out of capital allowances. I should like to see the purity referred to by the hon. Member for Yeovil so that a board of directors can assess future investment from a knowledge of what can be produced in the market rather than by being influenced by Government and artificial incentives provided by Government through the tax system. The proper long-term thrust of Government policy is right. However, like the hon. Member for Yeovil and my hon. Friend the Member for Croydon, South, I think that the timing for introducing the change is unfortunate. Unlike the hon. Member for Yeovil, who does not see any improvement in industry's economic prospects, I believe that gently we are beginning to get off the ground. An economic improvement is on its way, as is shown by several indicators. I hope that the hoisting of interest rates will not set back that improvement.
I welcome the reduced corporation tax rate to be introduced in three years' time. Ultimately, it will encourage industry. I concede that income from corporation tax received by Government is minimal. However, changes in corporate tax should occur when the economy is more robust than it is today. Capital allowances give companies the incentive to invest. If they invest, they provide employment and if they provide employment the Government get clawback through taxation and the pay-as-you-earn system. Despite my reservations about the timing of the phasing out of capital allowances and the reductions in corporation tax, I warmly welcome new clause 34, which meets all my requests. I hope that it will be overwhelmingly accepted by the House. I repeat my hope that the goodwill that has prevailed during my speech will remain with the House during the rest of the sitting.

Sir Paul Bryan (Boothferry): I wish to speak about shipping, but first I must declare an interest as a director of the Furness Withy Group.
After the Budget, the Inland Revenue press handout on the changes in investment allowances stated:
The Chancellor pointed out that the long term underlying effect of this reform would be to encourage the movement of resources into investment projects with a genuine worthwhile return, to discourage uneconomic investment and to permit industry as a whole to improve its profitability and expand.
I agree with this reform. All hon. Members can think of plenty of industries where the pattern of investment has been distorted to a ridiculous degree by the incidence of investment allowances. Therefore, I concede that to qualify for exemption from the new regime, an industry should have not merely to make a strong case but to prove itself unique.
As I said in the debate on the defence Estimates, shipping has done that in the past. It was taken for granted that shipping was the lifeline of the country, and our history has shown that to be so. The time has now come when the Government cannot delay for much longer an answer to the thorny question: is shipping still the lifeline of the country?
The Financial Secretary has shown that he knows that to be true. As other hon. Members have said, the size of the merchant fleet during the past 10 years has not merely dwindled but plummeted, and will soon be a third of its size in 1975. As if the figures were not warning enough, the Falklands crisis came along to bring home in the starkest form the lesson that we have only enough shipping to support even a limited action of that sort.
In shipbuilding, where the industry has declined drastically, one can get some comfort from the fact that we still have the naval shipyards to maintain our defence capability. However, no such safety net exists for the merchant fleet. What could be described as the financial safety net is being removed by the abolition of the 100 per cent. free depreciations. The Financial Secretary can claim that he has recognised this industry to be unique—the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) complained of that. He has granted concessions, which are welcome. They will soften the blow and give some flexibility, which is what the shipping industry has constantly asked for. I welcome them and am grateful for them. If I say that the concessions will not totally satisfy the shipping industry, my hon. Friend will not be surprised. The reason is that exceptional methods must be used in the industry to maintain some calm in an impossibly turbulent financial sea.
Few people realise the size of the investment involved or what the General Council of British Shipping calls the "lumpiness" of the investment. In a lean year, one cannot decide to limit one's capital expenditure to a moderate sum. Either one buys a ship or one does not. If one owns container ships, one spends £30 million or nothing. A cruise ship costs £100 million. By the time the ship is built, the volatile nature of the world market can have increased or decreased the ship's value by up to 30 per cent. To increase further the peaks and troughs, the market operates in a number of currencies so that the profits are subject to all the changes and chances of exchange rates. I know of no industry where a calming factor is more badly needed to maintain continuity of planning and investment.
Other countries have this problem and have dealt with it either by high protection or by subsidy. Among the

major maritime flags, competitors enjoy a wide array of benefits, ranging from a no-tax regime for the flags of convenience to investment grants, tax-free reserves and exceptionally favourable credit for investors in ships.
The British 100 per cent. initial investment allowance has been a particularly flexible and efficient way to elevate the industry from a complete gamble to a reasonable business enterprise. The erratic movements of profits tax, payments and cash flows are at least mitigated. Shipping does not qualify for the aids available to other United Kingdom industries. It has no protection and faces severe international competition, all of which is benefited, aided or subsidised in one way or another. Shipping's big advantage, its capital allowance— which is unique to this country — is being scaled down in spite of its contribution to defence, the balance of payments, employment and trade.
Once again, I express my gratitude to the Minister. He has undoubtedly shown that he understands the depressed state of the industry, that it is still decreasing in size and that he appreciates that some immediate action has to be taken. But I hope that he will allow the debate to continue with the industry during the coming year.

Mr. Maples: I wish to take up one point made by the hon. Member for Yeovil (Mr. Ashdown), who said that unincorporated businesses were being discriminated against. That is not true, because the average unincorporated businesses pay tax at the basic rate of 30 per cent. As much of their income is exempted from tax by personal allowances, they are paying tax at a lower rate. If anything, the previous system discriminated in their favour. If they ever had to pay higher rates of tax, they could incorporate themselves and thus continue to pay 30 per cent., which would be the smaller companies' rate.
Apart from one small reservation, I welcome the reforrn that the Government have introduced to the system of corporation tax. The philosophy behind removing deductions and reducing tax rates is right. In this case it will make productive investment much more profitable than it has been, because Britain will have one of the lowest rates of corporation tax in the world. I am sure that we all know of companies which have made unnecessary investments, or at least investments that were only marginally profitable, because of tax concessions. I know of private companies, with which some of my friends are involved, which have bought capital assets in the last weeks of their financial year so as to reduce their tax bills, with no regard to whether those assets could be used profitably in their businesses.
We should also remember that much of the justification for capital allowances and stock relief was that at a time of high inflation, when companies prepared their accounts on an historic cost basis, they faced an unfair tax bill unless such allowances were in place. They were being taxed on the basis of historic cost profits which were completely unrelated to what was happening in their businesses, the need to increase the monetary value of stock and the increased monetary cost of replacing physical assets.
In many cases—I have done some calculations—the return on investment at a 35 per cent. tax rate with a 25 per cent. depreciation rate is considerably better than the return on 100 per cent. depreciation in the first year and a 52 per cent. tax rate. We have seen in the press and in the report of the Institute of Fiscal Studies some argument


about whether the change will reduce the total amount of tax. Much of the argument was based on the assumption that people will continue to behave as they did under the old system, but that will not happen. The answer is almost certainly that it will affect them in different ways.
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My only reservation—I should be grateful if my hon. Friend would deal with it—is that some companies have genuine, long-term, large investment programmes on which, under the old scheme, they paid almost no tax. Now many of them will have to pay tax. I am concerned not with all of them, but with those companies in the manufacturing sector which have a genuine potential for a substantial increase in output, exports and employment. Those of us who watch the trade figures in manufacturing goods must be worried about the trend that has developed during the past few years, and must be asking ourselves, "What will happen when the oil runs out?" We need a competitive manufacturing sector. Wherever the Government can encourage lower unit costs in the sectors where there is a real potential for increased output and employment, they should do so.
An unwanted effect of the reform might be to increase the costs of a few companies. Perhaps during the next three, four or five years my hon. Friend the Minister will keep an eye on this matter. If it becomes a problem, perhaps the Government could introduce proposals to ameliorate the problems of those companies in the manufacturing sector.

Mr. Campbell-Savours: When the Chancellor of the Exchequer made his statement on Budget day, the linked arrangements between capital allowances and corporation tax reductions were welcomed by pundits commenting on television and radio upon the Budget provisions. However, it is significant that during the following few weeks there was an abrupt change in the way they put forward their case, as information came from the major City institutions that the net effect of the Budget measures would be to cost British industry a great deal.
Conservative Members may have welcomed the thrust of the Budget strategy, but today they have not placed on record as effectively as they should the representations being made to them by innumerable bodies, including some representatives of the CBI and the British chambers of commerce, about the effect on companies' cash flows of stock relief and the introduction of VAT on imports at ports.
At first I welcomed the Chancellor's comments to some extent, because he said:
Over virtually the entire post-war period there have been incentives for investment in both plant and machinery and industrial, although not commercial, buildings. But there is little evidence that these incentives have strengthened the economy or improved the quality of investment. Indeed, quite the contrary: the evidence suggests that businesses have invested substantially in assets yielding a lower rate of return than the investments made by our principal competitors. Too much of British investment has been made because the tax allowances make it look profitable, rather than because it would be truly productive. We need investment decisions based on future market assessments, not future tax assessments ."— [Official Report, 13 March 1984; Vol. 56, c. 295–96.]
In those few final words the Chancellor was expressing the views held by many people in industry. Indeed, that comment is at the root of the changes.
Some believe that the Chancellor went too far. For example, the National Federation of Self Employed and Small Businesses drew the attention of members of the Standing Committee to that federation's view that the Chancellor's statement, to which I have referred, underlined the Government's emphasis on generating jobs in medium-sized companies but illustrated their lack of understanding of the small business sector.
I should have thought that the Government would have been particularly sensitive to the small business sector. After all, the Secretary of State for Trade and Industry and other Ministers are constantly telling us of the success that the Government have had with the business expansion scheme, the venture capital fund arrangements and the loan guarantee scheme, all of which have made a contribution to the development of small businesses in recent years.
The National Federation of Self Employed and Small Businesses expressed concern to us about the position of small traders. It reported that in recent years its members had improved their efficiency and expanded as a result of the 100 per cent. tax relief on capital equipment purchases. It referred to small haulage firms—hon. Members can think of other examples—which would not now be in existence if they had bought capital assets out of profits subject to the normal income tax rates.
The Minister may have dealt with these matters while I was temporarily not in my place. If not, he should deal with the concerns of small traders, because they represent a body of British commercial public opinion; and we have been told that small traders will form the basis on which the new industrial revolution in Britain will take place.
In its submissions to us, that federation spoke of small business investment "naturally declining"—the phrase it used — in the next two or three years. Many commentators had said, according to the federation, that the consequences of the withdrawal of capital allowances for small firms had been offset by the reduction in the small firms' rate of corporation tax. Many small incorporated firms did not pay corporation tax, while unincorporated businesses were not subject to corporation tax, as they were taxed on their income and were subject to income tax, so there was no offsetting relief.
I trust that the Minister will deal with the problems faced by traders in that position, because in constituencies such as mine—in the absence of major industrial plants, many of which have closed down in recent years—we are told that small firms are the seedcorn of our industrial regeneration. If those firms are feeling the pinch as a result of the Budget, their voice should be heard.
The annual review, of which I spoke earlier, should take into account—indeed, to an extent should be based on—the position of smaller companies to ensure that they are not being unreasonably damaged during the recession.
The Chancellor referred to the transitional tax arrangements for certain investment projects in the development and special development areas. He said:
When a project in those areas has had an offer of Industry Act selective financial assistance and also attracts regional development grants, the existing capital allowances will continue to apply to the expenditure to which the selective financial assistance is related."—[Official Report, 13 March 1984; Vol. 56, c. 296.]
He then went on to discuss the timing of such arrangements.
I understand that there are to be reductions in capital allowances which will affect the regions, the peripheral areas, which include areas of high unemployment, such as my constituency. In the longer term the transitional arrangements do not remove the full thrust of capital allowances, although they provide for a more easy changeover arrangement whereby companies do not feel penalised as they would if they were in other parts of the economy where regional aid is not available. If companies are to suffer from the loss of capital allowances, we should ensure that the Government take the reductions into account by increasing regional assistance. However, that would run contrary to the White Paper on regional aid which was published some months ago—about which representations were made by hon. Members and by outside lobbies — and which proposes reductions in regional aid.
Capital allowance reductions cannot be considered in isolation. They must be taken in conjunction with the losses of regional aid and the redrawing of the assisted areas map. In regions such as that in which my constituency lies there is to be built into the regional strategy an arrangement whereby we shall lose our ability to attract capital-intensive industries because of the plan to gear regional assistance to the number of jobs that are created. Regional aid has been based to some extent but not solely on that criterion because there has not been a ceiling.
The Government are not legislating for the arrangements that were published in the White Paper some months ago. They are suggesting in parliamentary replies and ministerial statements that, despite the representations that are being made in the process of consultation, they are likely to pursue a strategy of maximum levels of assistance being made available based on the number of jobs that are created.
That approach militates against constituencies such as mine which historically have relied on the attraction of capital-intensive industries to provide jobs. My area managed to attract Thames Board Mills and the Leyland National Bus plant in the late 1960s and early 1970s. Those organisations came to the area because of the availability of labour and the high levels of regional assistance that were available. We are now likely to lose those levels of regional assistance. We lost our special development area status two or three years ago.
These factors must be taken in conjunction with the new arrangements that will exist for capital allowances. When the Minister replies he will have a duty to veer slightly from the central and main thrust of the new clause and to address himself to the problems of areas that will lose regional assistance if the proposals in the White Paper are implemented.
The Minister referred to the possibility of introducing a clause in next year's Finance Bill to deal with the problems caused by the case of Costain and to take up its court arguments with the Inspector of Taxes. The argument seems to be whether a lessee has the right to claim capital allowances on his purchases. As I understand it, the court ruled that, in so far as the freeholder was the real beneficiary in the longer term, the lessee was not in a position to claim. I hope that next year the Financial Secretary will conduct the review in the light of how it may affect rental and lease values. By allocating a consession within the law he might be subsidising leases by enabling lessors to set a higher value on any leases they grant.

Mr. Moore: This has been a long and worthwhile debate on a matter which many hon. Members from both sides of the House realised had not been fully discussed before. I was interested to sit throughout the debate to hear what hon. Members had to say. I shall take up some of the points made by the hon. Member for Workington (Mr. Campbell-Savours), although I shall not go into too much detail. I must correct a slight misapprehension about the Costain case. The result was that, theoretically, a legitimate allowance could relate to either a lessee or a lessor and not be able to be claimed by anyone. We are seeking to rectify the position that could arise when the allowance disappears. I note the hon. Gentleman's point, but I do not believe that it has relevance to the issue at which we are looking.
The hon. Member for Workington fairly raised the matter of problems in the regions, and I shall draw his remarks to the attention of my right hon. Friend the Secretary of State for Trade and Industry, who is responsible for that aspect. I am not saying that I do not see the connection between that problem and the capital allowances regime. I understand the hon. Gentleman's point, and shall ensure that my right hon. Friend is aware of it also.
My hon. Friend the Member for Lewisham, West (Mr. Maples) asked about companies with high levels of investment but paying no tax. I thank him for his overall endorsement of our budgetary policies in that respect. Obviously, we shall keep the effect of the changes under review, particularly those affecting companies with a high level of investment. We shall carefully watch how the changes affect industry and the economy. I thank my hon. Friend the Member for Macclesfield (Mr. Winterton) for his fulsome thanks for our actions.
My hon. Friend the Member for Boothferry (Sir P. Bryan) welcomed the amelioration in conditions in the shipping industry. He would have liked the Government to go further. My hon. Friend talked especially about the lumpiness in relation to the shipping industry. I have sought to recognise that problem by offering greater flexibility and the continuation of free depreciation for new ships. I know that my hon. Friend generously welcomed our measure.
I enjoyed the speech of the hon. Member for Yeovil (Mr. Ashdown), who, I am sure, is absent for only a moment. I say without in any way being patronising that I think the same of the speech of the hon. Member for Colne Valley (Mr. Wainwright). We may disagree about some aspects, but those hon. Members have sought to approach the matter constructively.
We began our discussion on the problems of the unincorporated sector in Committee, and we have debated the matter at considerable length since then. I do not propose at this stage to go into the details again. I shall certainly examine the points made by the hon. Member for Yeovil. I understand his statements about the farming community, which I believe were shared by my hon. Friend the Member for Macclesfield. I remind the hon. Member for Yeovil and my hon. Friend the Member for Macclesfield of what my hon. Friend the Member for Lewisham, West said.
My hon. Friends the Members for Tatton (Mr. Hamilton) and for Hampstead and Highgate (Sir G. Finsberg) — he apologised for not being here for my


reply, because he had to go to a constituency function—thanked me for my response to new clause 17. I was asked to ensure that the Retail Consortium was involved in any discussions in this critical area, and I give that assurance. I shall ensure that, as the debate develops, information will be given to all those hon. Members who have an interest in it.
The hon. Member for Thurrock (Dr. McDonald) rightly tackled the debate from a fundamental point of view. She argued that companies should be properly taxed. She said that at the same time we should not discourage them in their investment programmes. The Government do not think that they have sought to do either. I am sure that the hon. Lady, as well as us, takes some comfort from the great statement from "Labour's Programme" of June 1982 on company taxation, to which I refer again and again. I am sure that the hon. Lady was thinking of that when she made her remarks. It stated:
We must have a corporation tax system with lower percentage rates of tax than in the past, but with more restricted reliefs and allowances. It must be less prone to manipulation that can reduce taxable profits below any fair assessment of profitability.
I do not think that either of us would disagree with the fundamentals. The problem is how the present system was working. The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) properly said that he recognised some of the fundamental difficulties. I have to say to Opposition Members that the suggestion that the system preceding the Budget was succeeding is not correct. I hesitate to quote myself, but I should like to refer to a speech that I made outside the House to The Times business conference on 22 May. We all seriously considered the matter, and I said:
The United Kingdom system, before budget day, offered probably the most generous tax subsidies in the world.
This was the problem that we all faced. I stated:
It was assumed that this would mean more and better investment in the United Kingdom than in competing nations.
That is the assumption with which hon. Members on both sides of the House lived for many years, yet it has not been correct. Investment activity in this country has not exceeded investment by our competitors, even on machinery and plant, which has received the most generous allowances of all. We have not out-performed our competitors. Data from 1970 to 1981 show that investment as a proportion of gross domestic product was much the same here as in the other OECD nations.
I shall not go into that in more detail, except to say that the essence of the argument seems to be that we should have generous incentives. There could be a debate with the hon. Member for Colne Valley about the nature of the life cycle of plant and assets. I accept that that is a legitimate debate, but there is no debate, on the Government's analysis, about the fact that there were generous investment subsidies for many years, under Governments of both major parties. However, they have not worked. They have not produced a greater quantum of investment or a qualitative investment pattern that allows us to act in relation to our competitors. I could give the same data that I gave in the speech to which I referred, but I think that that would bore the House.
Many hon. Members discussed in considerable detail what they thought was an attack by the Government on manufacturing. The matter was raised by the hon.

Members for Thurrock, for Colne Valley and for Stoke-on-Trent, Central. There is no truth in the assertion that the Government are not concerned with manufacturing. The question whether a manufacturing company will benefit from the changes that we have made, which include reductions in the rates of corporation tax, abolition of the national insurance surcharge and stock relief as well as the capital allowance changes, depends on several factors, including the level of profits and profitability, the timing of investment and the numbers employed in a company. Even within the same industry, there will be differences between companies—some will benefit and others will be disadvantaged. Companies that are very profitable, with high taxable profit, will tend to gain. That is how it should be. The changes are designed to encourage enterprise and success.
It is important to remind the House of the latest Department of Trade and Industry survey of investment intentions in manufacturing. It expects volume increases of 12 per cent. in 1984 over 1983. I accept that there is a long way to go before there is a complete pick-up in investment in manufacturing industry, but it is investment in profitable industry of whatever character that we are seeking to argue.
The hon. Member for Thurrock referred to the IFS sample. I mentioned that the total sample was 4,000, but the projections for future years were based on 600 companies, which therefore are only a small proportion of the total of manufacturing and distribution companies.
The hon. Member for Stoke-on-Trent, Central asked about writing-down allowances and was worried about abuse. He asked whether the increased flexibility in writing-down allowances opened the way for abuse. I say categorically that it does not. All that it is doing is allowing taxpayers to use allowances in a later year if they wish. It reduces the amount of what might be called force feeding. This is critical. The abuse arose when taxpayers were allowed to accelerate allowances. Our proposals are in the other direction. Taxpayers are being permitted, in their own interests, to delay them.
The hon. Member for Colne Valley asked about the economic progress report chart 5. He also wrote to me about it. I hope that he will not mind if in future I always seek to give out tracts, as I believe that it is useful for Governments to spread information of whatever kind throughout the House. At least it allows us to debate these matters on the basis of interesting objective comment. The hon. Gentleman asked about the shading of the chart. As he now knows, it shows the ranges of write-off periods available, as the accompanying text makes clear.
The hon. Gentleman made many fair points about the judgment of the relative size and lifetime of company assets. I remind him of his own words in the Select Committee on the Treasury and Civil Service on 22 March when he interrogated Mr. Willingale of the CBI, an expert in this area. The hon. Member for Colne Valley said:
May I ask … a point which I think may well arise quite acutely in the Finance Bill, and that is the Government's alternative proposals for depreciation. Now that they are scrapping the 100 per cent., the Chancellor stated that future depreciation would be 25 per cent. on the reducing value
He succeeded in expressing aptly and shortly most of the past few hours' debate on this. Mr. Willingale replied:
It is a realistic period if you have a low rate of tax.
That is a critical aspect, which has not emerged in the debate. He continued:


The only reason why you want high relief is if you have a high rate of tax to suffer, because you have to compensate for it.
That is the real reason. It is quite normal to write off slowly.
The hon. Member for Colne Valley then asked:
Regardless of the rate of tax, do you not think it is fair and efficient that the tax system should allow a write off which corresponds with reality?
That question is essentially one for the Treasury Bench. Mr. Willingale replied:
I think that raises the question of standardisation. It is true that originally there was a whole system of different rates of write off. There may be something in that, I do agree. But 25 per cent. reducing balance probably takes the middle line on various kinds of assets.
I accept that there is much room for debate about varying rates, and so on. I tried to address the subject rationally in my earlier very long speech, which I shall not seek to repeat.
Perhaps I may put one comment on record. The hon. Member for Colne Valley is very fair and I am sure that, when he said earlier that before 1945 we had a first-class Inland Revenue service, he did not intend to imply that we no longer had such a service.

Mr. Wainwright: I am grateful to the Minister, but I cannot accede to his request. I readily acknowledge, as I always have done, that the staff of the Inland Revenue today are every bit as dedicated, well-equipped and concerned as their predecessors, but the absurd cuts in the Civil Service in the Government's numbers game without any regard to the efficient running of public services have crippled the Inland Revenue so that an appalling amount of tax now remains uncollected.

Mr. Moore: I am glad that the hon. Gentleman intervened, although I cannot agree with what he said. Nevertheless, he has made it clear that his criticism was directed not at the Inland Revenue or civil servants but at the Government. Our shoulders are broad enough to take and reject that criticism, but it would not be proper to leave on record any uncorrected criticism of our civil servants.
I think that I have covered most of the major points. If any remain outstanding, I will write to hon. Members. We have had an excellent debate. I have argued—correctly, I hope—that we have tried to remove the distortions and the incentives to invest for subsidy and, as the hon. Member for Yeovil rightly said, to put the decision making back into the board room.

Question put and agreed to.

Clause accordingly read a Second time.

Amendment made to the new clause, in subsection (7) leave out
reduced allowance or allowances referred to in paragraph (c) of that subsection bears to what that amount would have been apart from the reduction
and insert
reduction mentioned in paragraph (c) of that subsection bears to what the amount of the allowance or allowances would have been apart from that reduction."—[Mr. Moore.]

Clause, as amended, added to the Bill.

New Clause 38

EXPENDITURE ON PRODUCTION OR ACQUISITION OF FILMS ETC.

To move the following Clause:
`(1) Section 72 of the Finance Act 1982 (expenditure on production and acquisition of films etc.) shall be amended in accordance with the provisions of this section.
(2) In subsection (3) (expenditure to be allocated to relevant periods in accordance with subsection (4)) for the words "subsection (4)", in both places where they occur, there shall be substituted the words "subsections (4) to (4B)" and at the beginning of subsection (4) there shall be inserted the words "Subject to subsection (4A) below".
(3) After subsection (4) there shall be inserted the following subsections—
(4A) In addition to any expenditure which is allocated to a relevant period in accordance with subsection (4) above, if a claim is made in that behalf not later than two years after the end of that period, there shall also be allocated to that period so much of the unallocated expenditure as is specified in the claim and does not exceed the difference between—

(a) the amount allocated to that period in accordance with subsection (4) above; and
(b) the value of the film, tape or disc which is realised in that period (whether by way of income or otherwise).
(4B) As respects any relevant period. "the unallocated expenditure" referred to in subsection (4A) above is that expenditure falling within subsection (3) above—

(a) which does not fall to be allocated to that period in accordance with subsection (4) above; and
(b) which has not been allocated to any earlier relevant period in accordance with subsection (4) or subsection (4A) above."
(4) In subsection (5) (exclusion of trading stock) for the words "and (4)" there shall be substituted the words "to (4B)".
(5) In subsection (7) (which, as amended by section 32(1) of the Finance Act 1983, provides transitional relief for certain expenditure incurred on or before 31st March 1987) the words "on or before 31st March 1987" shall cease to have effect.
(6) In subsection (8) (conditions for certification) after the words "this section" there shall be inserted the words "unless, by notice in writing given by the person incurring the expenditure, he is requested to do so and".'.

Brought up, and read the First time.

Mr. Moore: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to take Government amendment No. 73, amendment No. 181, in clause 60, page 44, line 41,
after `subsection', insert `(3) in line 9 and after the word "shall" shall be inserted the words "unless it is expenditure falling within subsection (9) below", and in line 10 for the words "subsection (4)" shall be substituted the words "subsections (4) and (9)", and in subsection'.
and amendment No. 182, in page 45, line 2, at end, insert
`and for subsection (9) there shall be substituted the following subsection—
(9) Expenditure incurred (on or) after the 31st March 1985 shall be allocated in accordance with the following provision:—

(a) 25 per cent. to the relevant period in which the film tape or disc is delivered;
(b) 50 per cent. to the relevant period in which the film tape or disc is first exploited for the purposes of gain: and
(c) 25 per cent. to the relevant period next following that in (a) above in this subsection;:—
`Delivered' shall mean that point in time when in the case of a film a final answer print has been struck and in the case of a tape or audio-visual disc when the version


that is first publicly exhibited or commercially exploited came into existence and in the case of an audio disc when the final mix is completed. 'Exploited for the purposes of gain', shall mean the earlier of the first public exhibition first transmission or first diffusion or where intended for unit sales the first unit sale".'.

Mr. Moore: It has been suggested, Mr. Speaker, that it might be for the benefit of the House if, with new clause 38, we also considered amendment No. 178. I should be happy to agree to that.

Mr. Speaker: If that meets the convenience of the House.

Mr. Moore: New clause 38 gives effect to two changes in the tax treatment of films, which were foreshadowed in the Budget, and to a further change.
Films are also the subject of amendment No. 178. This is the third time during our consideration of the Bill that we have discussed the film industry. During the debate in Committee on clause 57, which was taken in the Chamber, there were a number of references to the state of the film industry and the impact of the capital allowance changes. Those who took part in the debates in Committee will recall our subsequent lengthy but considered debate on the film industry. During that debate we heard about two sides of the film industry. A number of hon. Members from both sides of the Committee paid tribute to the success of the British film industry, particularly in recent years, and felt that it needed and deserved support and encouragement. I listened with attention and sympathy to what was said. I also listened with attention and sympathy to what was said by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) in that debate. During what was perhaps the more responsible part of his speech he described the way in which tax incentives for films had been abused by certain people whose interests lay not in the prosperity of the industry but in crude tax avoidance.
In responding to that debate, I made it clear that I accepted that there was substance in both arguments, even though their conclusions were not easily reconcilable. However, I reminded the Committee that there was a third argument—that the treatment of films needed to be seen in the context of the Budget reforms of business taxation changes generally, and that it was impossible to view the industry in isolation from the new capital allowance regime, which seeks to ensure more even-handed treatment between one industry, or type of asset, and another.
I shall not weary the House with a repeat of my speech, which included a detailed review of how film taxation has changed in recent years. However, I stand by the principles that I enunciated on that occasion—first, that the Government hope for a prosperous and innovative film industry, secondly, that the taxation of the industry has to run broadly with the grain of Government tax policy, and, thirdly, that the Government firmly oppose the use of filmmaking for artificial tax avoidance purposes.
The proposals in the new clause and amendments Nos. 178 and 73 are consistent with those principles. First, it was announced on Budget day by the Chancellor of the Exchequer that films qualifying under the Eady rules—broadly speaking films with a substantial British content — will qualify for capital allowances on a permanent basis, but the capital allowances will be at the rate

applicable to machinery and plant generally for every other industry. That provision is already contained in clause 60. It has been incorporated in subsection (5) of the new clause, and so we propose in amendment No. 73 to delete clause 60. I welcome the support of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) for that amendment.
Secondly, we propose to give the industry an option where Eady films are concerned, of choosing either to take the capital allowances at the going rate or to be taxed in accordance with the formula laid down in section 72 of the Finance Act 1982, which allows expenditure to be written off on revenue account broadly in proportion to, and at the same speed as, the income accruing to the film. This measure was foreshadowed by my right hon. Friend on Budget day. As in many cases section 72 treatment would be preferable to the capital allowances, that is an important and valuable concession, which I shall discuss shortly.

Mr. Tony Durant: One of the grievances of film producers arose from their understanding that there was a pledge to provide 100 per cent. capital allowances until 1987. They were planning on the basis of that understanding. Will my hon. Friend comment on that?

Mr. Moore: My hon. Friend is right to raise that matter now. Although I understand my hon. Friend's point, I do not accept the suggestion that the Government have not honoured the statement that my right hon. Friend the Secretary of State for Transport made when he was Financial Secretary to the Treasury. He said that he would continue to make special arrangements for the film industry until March 1987. In that statement there was no commitment to keep 100 per cent. first-year allowances until that date, nor do I think it reasonable to assume that there would have been such a commitment. We all know that changes in tax rates and allowances are made every year. My right hon. Friend the Chancellor has made a notable exception this year by announcing firm rates of corporation tax for several years ahead, so that when the system is changed there can be no reserve rights. There will often be a case for transitional arrangements, as is the case here, but nobody has a prescriptive right to regard themselves as unaffected.
Section 72 treatment is important. In many cases the industry would find it preferable to capital allowances, so it is therefore an important and valuable concession. It is not available to any other industry and, as the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) said in Committee upstairs, it recognises the somewhat unusual pattern of film expenditure and receipts. We have been pressed by the film industry and some hon. Members to go much further. Proposals have been made to make section 72 far more advantageous by permitting expenditure to be written off before receipts come in, sometimes well in advance. I have made it clear that the Government cannot accept those proposals for several reasons. One is that they would effectively reintroduce, by the back door, the incentives of the first-year capital allowances that we are phasing out. I am aware that some would welcome that.
Another reason, in which the hon. Member for Perry Barr will be interested, is that the proposals would be an open invitation to exploitation, as they would allow the creation of up-front tax losses upon which tax avoidance schemes could readily be built. I accept that they could be


attractive to would-be investors in the industry but that would be an enormous and unacceptable price in terms of tax lost and of the reintroduction of distortions in investment decision making. The ultimate beneficiaries of our tax reliefs would be the major American film production and distribution companies which finance and derive profits from many of the large Eady films that are made in Britain.
My hon. Friend the Member for Beaconsfield (Mr. Smith) has apologised for his absence—he has had to go to a constituency engagement. I cannot accept his amendments — Nos. 181 and 182 — which would substantially alter the thrust of section 72 by permitting expenditure to be written off in advance of income. His proposal is similar to, though not quite as favourable as, an amendment that we discussed in Committee. On this occasion, he proposes that 25 per cent. of expenditure on a film should be written off on completion, 50 per cent. should be written off on first showing and that the remaining 25 per cent. should be written off in the accounting period following completion. The difference between these and his previous amendments is the transformation of the percentages in the first two stages. That change has little effect on the cost of his proposal and none on the objections in principle to it.
After referring to costs in Committee, the industry expressed some surprise at the figures that I quoted. The cost of any change in film taxation must take into account the fact that, for tax purposes, Eady films include television and feature films. Although by definition the feature films concerned are those which are largely made in Britain, they include many, especially larger productions, which are made by overseas studios—most of which are American. Although the finance for and profits from such films are foreign, it is a fairly straightforward matter for arrangements to be so structured that any United Kingdom tax incentives for films are collected by the production or distribution companies, so such films must also be included. In other words, they reflect the pattern of the industry. In reply to my hon. Friend's amendment in Committee, I explained that the cost of his proposal would be negligible in 1985–86, £20 million in 1986–87, about £55 million in 1987–88, £65 million in 1988–89 and £60 million in 1989–90, and that thereafter the annual costs would decline. These figures were the cost of my hon. Friend's proposed write-out formula as compared with the new capital allowance regime.
The option that we are proposing in the new clause to give the industry which will allow it to opt out of capital allowances and take section 72 treatment instead, if it wishes, will itself be of considerable value. We estimate that over the next six years the section 72 option will provide a tax benefit to the industry amounting to around £100 million. The additional cost which would have been involved by amending section 72 in the way proposed by my hon. Friend, that is, additional to the £100 million, would have added a further £130 million or so to that, £50 million in 1986–87, and £40 million in 1987–88, declining to around £10 million annually thereafter.
Following our debate, the industry said that in its view the cost of its proposal would be more like £5 million to £8 million annually. That figure is not wholly inconsistent with my own estimate of the long-term steady state cost,

but it ignores the substantial costs that would be involved in the early years when the write-off formula for which the industry had been asking would have maximum impact.
As to the cost of his present proposal, I have to tell my hon. Friend that there is virtually no difference between that and the cost of the proposal that he put forward in Committee which I have just explained. This is because stage one in his formula, which is completion of the film, often occurs within the same year as stage two, that is, first showing, so transforming the percentages has almost no effect, and the cost to the Exchequer remains the same.

Mr. Tim Brinton: My hon. Friend referred earlier to the 100 per cent. write-off as something that could not be permanent and that was not a specific pledge. He said that transitional arrangements could be made instead. I welcome, as I suggest many people in films will welcome, his present proposals. He then talked of six years. Can he confirm that this is more permanent than the previous non-pledge?

Mr. Moore: It is always difficult in the House to confirm anything as permanent in the world in which we live. The system as proposed in the clause is an alternative system to the proposed permanent system of capital allowances so that the film industry may take its choice between the two systems. I can give that degree of commitment to my hon. Friend.
To turn to the principle of my hon. Friend's amendment, I have to point out again that it affords just as much opportunity to create up-front tax losses and, therefore, to obtain a considerable Exchequer subsidy. As before, it runs directly contrary to the whole approach of our reform of the tax incentive system.
Therefore, I regret that it does not provide the basis for an acceptable solution. Nevertheless, as my hon. Friend the Member for Gravesham (Mr. Brinton) has said, the Government, as promised in Committee, have given further consideration to what else might be done to encourage the industry within the general tax policy framework that I have described.
Beyond what I have discussed in terms of section 72 treatment, may I go on to discuss cost recovery embodied in the new clause? As a result, I have a third proposal to bring forward which is contained in subsection (3) of new clause 38. It provides for an adjustment to the present section 72 formula known as cost recovery. Under cost recovery, the expenditure on a film may be set off pound for pound against the income instead of on a pro rata basis. In effect, it means that the expenditure can be written off more quickly, but, unlike the proposal made by my hon. Friend and other hon. Members, it will not allow the expenditure to be written off in advance of, or faster than, the income arises. It will therefore neither reintroduce the distorting effect of investment subsidies nor provide a ready tax shelter for the avoidance industry, but it will be a help to successful British films, permitting them to delay the time at which tax on their profits become payable. I hope that this additional third point will be of help to the industry.
As it is for the convenience of the House, I am happy to explain now amendment No. 178 to clause 37 in the name of my right hon. Friend the Chancellor. The amendment provides for an extension of the business expansion scheme to which I referred in the Committee debates on the film industry. I announced in Committee


that we were examining how investment in film production companies could benefit from the business expansion scheme. While I made it clear that I could give no firm undertakings at that stage, I said that we were having exploratory discussions with the industry to see whether film production companies could adapt to qualify under the scheme as it stood, or, if that were not possible, whether it could be reasonable and practicable to extend the scheme so that they did qualify. I said that a move along those lines would encourage direct investment by British residents who had an interest in British films and were prepared to take a risk with their money to back that interest.
9.45 pm
Following those discussions we concluded that, whereas in certain circumstances it might already be possible for some film companies to qualify under the scheme, this was not so for most such companies. We have, therefore, decided it would be right to extend the scheme more generally to investment in British film companies. Amendment No. 178 is the result.
There is a wide range of eligible trades under the business expansion scheme, but as with its predecessor — the business start-up scheme — certain trades are excluded. Among the excluded categories are trades that consist to any substantial extent of receiving royalties or licence fees. As hon. Members know, most film companies receive the majority of their income in the form of royalties and are not normally eligible under the scheme at present.
The underlying aim of the scheme is to promote growth in activity, including jobs, in the small firms sector. The scheme is also for trades where the risks to the investor are at least to some extent commensurate with the general level of relief. Certain trades are excluded not because they are considered in any sense to be undesirable, but simply because they do not fit easily with these underlying aims.
Take leasing, for example. A company that acquires assets and leases them to someone else will itself usually have relatively little direct economic activity, compared to the company that employs those assets in its own trade. And, in the case of finance leasing, the company's operation will be almost exclusively of a financial nature and one where, by virtue of the lease itself, the risk will have been largely, if not entirely, laid off. In short, the operations of such a company will in this sense be essentially of a passive and financial nature, and as such not the kind of active and high risk operation for which the scheme is intended.
Similar considerations will often apply to trades that consist to a substantial extent of receiving royalties or licence fees. Thus, for example, the operation of a company that simply collects royalties on a copyright that it owns, or that simply licences others to make or use some product or process will again be essentially passive and financial in nature.
That said, however, there is no doubt that film production itself is an extremely risky business, and moreover it is not a passive operation in the sense I have described. But, because active and high-risk film production companies also derive their income mainly

from royalties, they too are caught by the present general exclusion along with other companies whose operations are more of a passive and financial nature.
The first kind of company is clearly just the kind of active and high-risk company generally that the scheme is designed to help. Moreover, representatives of the industry are especially concerned to encourage the smaller, independent United Kingdom film production company, producing relatively small budget films and material. Again, this ties in with the aims of the scheme itself.
The obvious way forward, therefore, is to find some way to distinguish between the "active" and the "passive" film company, and to extend the scheme to the former. That is what this amendment — which reflects consultation with industry representatives—seeks to do.
A film company with royalty income will be eligible under the scheme provided two key requirements are satisfied. First, the company must be engaged in the production of films throughout the relevant period. Secondly, all of its income from royalties and licence fees must derive from films which the company has itself produced. These two requirements are designed to ensure that the scheme is available only to high-risk companies, actively engaged in producing films on a continuing basis.
In addition, all the other normal qualifying conditions will have to be satisfied. For example, the company will also have to be incorporated and resident in the United Kingdom and carry on its trade wholly or mainly in the United Kingdom. It is proposed that this change should take effect for shares issued by qualifying companies from enactment of the Finance Bill. As to the cost—a point that is always raised—there is no way of knowing in advance how many companies will be encouraged to raise new equity under the scheme.
In conclusion, we believe that these changes meet the reasonable needs of the film industry, while recognising that it cannot be treated fundamentally differently from any other industry. Many other industries and sectors have pressed my right hon. Friend for exemption from the reforms that he has introduced. All can claim to have a case. Some no doubt may have a better case than the film industry.
The essence of the reform of tax incentives for investment is that taxation should be broadly neutral. We have gone as far as we can to encourage the British film industry, while remaining firmly within the framework. On that basis, I commend the new clause and the amendments to the House.

Mr. Rooker: I am grateful for the Minister's reply to the debate in Committee. There is no complaint on our part about accepting amendment No. 178. It seemed ludicrous to separate discussion on the amendments by several hours when they were all related to the same issue.
Amendment No. 73 was tabled in the name of my right hon. Friend the Shadow Chancellor. It turns out, under the rules of the House, that if the Chancellor of the Exchequer agrees with that amendment his name goes to the top of the list. A query was raised about amendment No. 73, because we wanted to re-debate it on the Floor of the House and we supposed that that would be the best way to do it.
Without going over all the debates — the Minister rightly says that this is the third time that we have dealt with the film industry —I I should like to pose a few


questions. The Minister has partly answered the financial queries raised by the industry after the debate in Committee. The Chancellor's explanation and figures given in Committee, and the industry's explanation—or allegation—in its letter to him of 15 June, show that we are not talking about dissimilar sets of figures.
How will the Minister reply to the rest of the letter, in which he was accused of misleading the Committee, especially in relation to the number of films? The figure was alleged to be less than half the figure that he actually gave. He claimed that the figures included shorts, and registered Commonwealth film. The industry said that the impression created was very misleading.

Mr. Moore: I was arguing as favourable a case for the industry as I possibly could. The industry's case was based on total expenditure, and covered all films, including shorts. I was trying to show the importance of all films, whether or not they were small ones. If I had reduced the number, that would have been less advantageous to the industry.

Mr. Rooker: I accept that. Although the British Film and Television Producers Association Limited has concentrated the thrust of its argument on films, it gives the impression that it is not interested in television films and does not care about them. Yet television producers are in the organisation. Most of its arguments, when the figures do not seem to fit, are that it is dealing with films in general. That is why it is important for the Minister to put that point on the record. He should do so if only because the industry is concerned about the number of people employed in it. That is not an unimportant point, given the nature of our debate earlier today on stud farms.
The Minister said in Committee in defence of his arguments that there had been no material change in the numbers employed in the film industry. But the industry is claiming that the numbers employed have substantially increased by about 150 per cent. in the past two years. Perhaps the industry's figures include television employees, but the point deserves some explanation.
The hon. Member for Reading, West (Mr. Durant) made a valid point, which was echoed by the hon. Member for Gravesham (Mr. Brinton). On 19 January 1983, at column 136 of Hansard, the industry was given a firm commitment, which no longer stands. The Government are prepared to say that they are breaking that commitment and replacing it with something else. It is not satisfactory for the honour of the House for the Financial Secretary to say that what the former Minister who is now in the Cabinet actually said did not count. That is not good enough in respect of other industries and organisations that take seriously the written answers in Hansard.
There should be no beating about the bush. The commitment has not been kept. The Minister should have the good grace to get up and say so. I know that he has that grace, unlike some of his colleagues in the Treasury. I exclude the Economic Secretary, but hon. Members know who I am talking about.
The Minister referred to the more responsible part of my speech and went on to talk about the tax avoidance measures. I recall from memory the irresponsible parts of my speech, but I do not intend to recite them now. The scandal of the involvement of the Rossminster company in tax avoidance schemes based on the film industry is well

known, and we need not go over that again. However, in Committee the Minister made a clear statement that, the Inland Revenue was investigating
a number of schemes involving artificial arrangements for the financing of films."—[Official Report, Standing Committee A, 7 June 1984; c. 852.]
Has there been any progress in those investigations? Until the Minister's statement, it was news to me that the Inland Revenue was taking the matter so seriously as to mount an investigation. We do not expect chapter and verse, but we should like some more informtion if that is possible.
The new clause and amendment clearly have the Prime Minister's stamp of approval, because we understand from the financial press that, despite all the great strains and the collapse of the economic structure that she has tried to create, the Prime Minister took time off to sort out the film industry while the Bill was in Committee. Therefore, it is clear that this new arrangement has the benefit of the Prime Minister's experience.
What good will result from including the film industry in the business expansion scheme? The Minister spent some time explaining amendment No. 178, but the industry points out that it welcomes the change although it has made it clear to the Government that it does not anticipate that it will be of any great help to anything other than low-budget films and programmes for television. Although the industry knocks television, it makes the point that this will be of no substantial benefit.
I appreciate that the Minister did not say that this was the panacea for the film industry. Nevertheless, it is a fig leaf, given the regime in which the film industry was placed before the Chancellor stood up on 13 March. The industry now has greater flexibility than it had under clause 60, because there are now three options, and three are better than two. For that we must be grateful.
This industry is of crucial importance to our economy. It has been brought back from the brink of disaster on several occasions and was beginning to flower once again. Therefore, it is sad that it has faced uncertainty since the Chancellor spoke. We are, however, grateful to the Minister for the way in which he has responded to the speeches and arguments made in Committee.

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Mr. Fisher: Hon. Members on both sides of the House who care about the film industry will warmly welcome the Financial Secretary's remarks, particularly the fact that he supported a prosperous and innovative film industry. The second adjective, "innovative", is every bit as important for the industry as the word "prosperous". Indeed, in the long term the two are interdependent. As the Financial Secretary knows from our previous debates on this subject, I am totally against the use of the film industry as a fairly cynical and artificial tax avoidance scheme. That is good neither for the Treasury nor, in the long term, for the film industry.
I and, I think, other Opposition Members broadly support the changes that the Government are introducing, which are a considerable improvement on the proposals made earlier in our proceedings on the Finance Bill. I congratulate the Financial Secretary on them. I agree with my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) that the proposals in amendment No. 178 will not be of any great benefit to the industry. Indeed, it will be interesting to know whether the Financial Secretary has any figures for the scale of financial benefit involved.


Moreover, the definitions in amendment No. 178 will not prove to be very suitable. As I am sure the hon. Gentleman knows, the relationship of production companies to the financing of films is variable, particularly in the feature film industry.
Unlike other industries, the production company, the owning company or the company that initiates a film, does not necessarily finance it. Therefore, production companies do not have the same continuity and stability year on year as companies in other industries. Indeed, I am glad to note the agreement of the hon. Member for Reading, West (Mr. Durant), who understands the industry well.
In view of that, the Financial Secretary might benefit from trying to find a better definition of "production company". Unintentionally, he will exclude many film production companies that might conceivably benefit under the business expansion scheme. I hope that he will agree that innovation will be found in the low budget area. If there is any potential for the business expansion scheme, it must be in that area. However, I fear that, because of the definition, there is, unintentionally, a danger that film companies will be excluded.
I very much hope that the Financial Secretary's remarks will be conveyed to the Minister of State, Department of Trade and Industry. We understand tht he is likely to make his long awaited statement on the industry in the very near future, if not next week. Other hon. Members no doubt felt, like me, that the Minister of State was white-faced and quite shocked by the proposals that the Chancellor set out in his Budget statement. I trust that on this occasion the Minister has been better informed and consulted about the changes, and that he will read the Financial Secretary's remarks about a prosperous and innovative industry. Hon. Members hope to hear some very constructive suggestions from the Minister of State next week.
The industry can survive the change in tax incentives and some diminution — as we fear will happen next week—in Government support, but it cannot survive both a change in tax incentives and a reduction in Government support. I very much hope that the Financial Secretary will bear in mind when having discussions with the Minister of State.

Mr. Durant: I do not wish to detain the House for more than a few moments. I should declare that I am a consultant to the British Film and Television Producers Association Ltd. In view of the comments of the hon. Member for Birmingham, Perry Barr (Mr. Rooker), I should make it clear that I am not a financial but more of a political adviser.
The film industry's main anxiety is to obtain investment. We have an excellent film industry in the creative sense. We have the right actors and creative people, but we need to secure investment. The industry has expressed anxiety to my right hon. Friend the Chancellor of the Exchequer as to whether investors will be deterred. We shall have to see what will happen. I have already intervened about the earlier pledge on allowances and I do not wish to go over that ground again. As has been said, most production companies are set up for one film in order to bring together a team of people to produce it. Therefore, there is no on-going basis for investment. That is one of the difficulties that the industry faces. Thus, the real

question is whether investment will be deterred or whether the Financial Secretary is convinced that investment will continue.

Mr. Tom Clarke: Like the hon. Member for Reading, West (Mr. Durant) and my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher), I welcome the Government's change of mind. However, by no means all the problems will be solved for the British film industry.
I apologise to the Financial Secretary because I did not hear the whole of his speech, but I am sure that he will be aware that shortly before Whitsun I initiated an Adjournment debate on the future of the film industry. I should like to think that it made a modest impression upon the Treasury's thinking.
As my hon. Friend the Member for Stoke-on-Trent, Central said, we are to be presented with a review of the film industry next week. However, we should not give the impression that, after all the discussions, representations, meetings and exchanges in the House, the film industry has been rescued.
Ministers must face the problem of the future of the Eady levy. I regret that we are dealing with the problems piecemeal. Until we know the Government's proposals for the Eady levy, we cannot be satisfied about their proposals for entitlement.
The Eady levy was introduced at a time when many more people went to the cinema. A small proportion of their ticket price went towards the production of the next film in which the producer was involved. That was an investment in the future. That is not how today's films are financed. Films are more likely to be produced for use by television, video or cable television than for the cinema. The film industry will welcome this modest proposal, but it is rightly worried about its future.
As the hon. Member for Reading, West said, the British film industry has a great deal to offer. It can tell the rest of the world that in the last two or three years it has experienced success, as the last Cannes film festival shows. Some of the finest technicians, producers and actors operate in the United Kingdom.
I hope that the Minister and the House will bear in mind that the new clause does not deal with all the film industry's problems. I hope that the Government's proposals, to be announced next week, will reflect the need to encourage a British film industry that wants to thrive and can compare with any other film industry in the world. Such an optimistic and forward-looking approach is what we all want.

Mr. Moore: I shall try to respond briefly to the debate, because, as the hon. Member for Birmingham, Perry Barr (Mr. Rooker) said, we discussed the matter at length in Committee. I thank hon. Members from both sides who have welcomed the changes, although I recognise that some hon. Members believe that we have not gone far enough.
I read the Adjournment speech by the hon. Member for Monklands, West (Mr. Clarke) with care. I shall draw the contents of his speech tonight to the attention of my right hon. Friend the Secretary of State for Trade and Industry, as I shall the speech of the hon. Member for Stoke-on-Trent, Central (Mr. Fisher). I listened carefully to the hon. Gentleman's remarks about the definition of the nature of a film production company. The problem is to ensure that


the opportunities of the business expansion scheme are provided without the problems of abuse and evasion. The limiting of the line of control is critical. I shall consider the hon. Gentleman's point. I know that he is interested in the success of innovative British film production companies.
My hon. Friend the Member for Reading, West (Mr. Durant) argued strongly and rightly about the interests of the film industry and its success. I assure him that we want that success and to see good investment from Britain and overseas in the British film industry. The hon. Member for Perry Barr asked about the numbers employed. I took great care in Committee to use figures that were, if anything, advantageous. I was conscious of doing that because I wanted to ensure that the case was considered with great care. I had difficulty because the figures I quoted—25,000 — were official ones from the Department of Employment. They did not show a measurable increase. I considered that because it was raised in all our debates. However, they were the official data.
The hon. Member for Perry Barr also asked about progress on investigations. There has been one major hearing and appeal relating to a film company before the Special Commissioners. Unfortunately, despite a long hearing which lasted about a fortnight, it was not completed and the case has had to be adjourned probably for about six months. I shall note the hon. Gentleman's interest in that and make sure I come back to him on it.

Mr. Rooker: I know that the Minister cannot answer my question, but I must ask it. Do the films to which he is referring relate to those that I mentioned in Committee and are they funded by Rossminster?

Mr. Moore: As the hon. Gentleman rightly said, I cannot answer a question relating to commercial confidentiality. If I can record that information, I shall write to him.
The hon. Gentleman also asked me to go further than I went in my statement. I went as far as I could go. He asked me the same point in Committee. I answered:
The statement was made by a Treasury Minister—my predecessor— my right hon. Friend the present Secretary of State for Transport, so I can answer categorically that the Treasury was involved and participated in the decision. The statement related to the existing structure of capital allowances. There were 100 per cent. capital allowances at the time, to the extension of the transitional … to 1987 subsumed within it the initial 100 per cent. allowances. The statement related to an extension beyond the time." — [Official Report, Standing Committee A, 7 June 1984; c. 822–3.]
Then I talked about pressure being applied by politicians. I cannot go beyond that statement.
The hon. Gentleman also asked me about the comments he had had from the industry and whether the business expansion scheme had value. Although the industry has been arguing a great deal in other areas, it may not have concentrated on the prospects and potential in the BES. As I said earlier, the industry's representatives were anxious to extend the BES to films to help smaller independent film companies.
My hon. Friends the Members for Croydon, South (Sir W. Clark), for Beaconsfield (Mr. Smith) and for Slough (Mr. Watts) asked in Committee about the BES. All hon. Members will recognise the potential for small independent British companies and see it as a more positive opportunity. I hope that it will be regarded by the film industry in that light. I hope that answers the points raised.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 3

GAS AND ELECTRICITY INDUSTRIES

`Upon the passing of this Act, the Chancellor of the Exchequer shall include in the annual Financial Statement and Budget Report a statement showing the impact on the public sector borrowing requirement of the external financial limits of the gas and electricity industries.'.—[Mr. Hattersley.]

Brought up, and read the First time.

Mr. Roy Hattersley: I beg to move, That the clause be read a Second time.
The new clause has a simple and clear intention. It is an attempt to provide the House and, through the House, the country with what I can best describe as honest information about the Government's fiscal intentions and the application of those intentions to the energy industries.
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In a moment, by way of example, I shall argue that in Britain there is now a tax on the purchase and consumption of gas and electricity. That tax has been imposed by the Government, certainly against the wishes of the British Gas Corporation. As I said in a previous debate — I repeat it now not least because my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan), under whom I had the honour to serve in a previous Administration, will confirm it — under the Labour Government the Treasury constantly proposed to us what it believed to be the ripping wheeze of reducing the public sector borrowing requirement by charging more for gas and electricity than was necessary for the welfare and prosperity of those industries and hoping that the general public would not notice this addition to their tax bills. In plain language, the addition is a purchase tax on energy.
The new clause intends that, when Governments are not sufficiently wise and protective of the public's interest and wish to avoid the blandishments of reducing the PSBR in this surreptitious and not altogether honest way, they must at least report the position openly and honestly to Parliament. During the past year we have seen a tinkering with the external borrowing requirements of the energy industries in a way that has enabled the Government to be deeply evasive about the effects. From time to time the Chief Secretary, the Chancellor of the Exchequer and even the Prime Minister have argued that the obligation on the gas and electricity industries has been changed only to make them more commercially viable in the normal, free market sense of those words. It has been argued that the Government are simply struggling to obtain a proper return on investment in those industries, although it is known by those who are prepared to examine the performance of the industries honestly and objectively that the Government have unnecessarily increased prices as a means of reducing the PSBR.
The Prime Minister has developed the doubly unfortunate habit of imposing price increases on the public sector fuel industries and then criticising them for increasing prices. That is typical of the Prime Minister's attitude towards political propoganda. All I say about that this evening is that, whether the gas and electricity industries were being used in that way, and whether their contributions to the PSBR were negative or positive, it is only reasonable that the House and the country should be told the effect of the financial requirements placed upon

them by the Government. If we are told that such information is unavailable—that cannot be true—or that it is inappropriate for the House or the country, we must assume that the reason why the Government do not wish to make available that information honestly and openly is that it will confirm what most commentators already know to be true: that the Government have used the energy industries surreptitiously to increase indirect taxes.
I can demonstrate that by using an example, and, I fear, demonstrate at the same time the evasive way in which the Government have continually treated this subject when they have been cross-examined on it, not in the party political forum of the House or in a Standing Committee, but in the more objective and calmer atmosphere of Select Committee sittings. The first example comes from the Chancellor's evidence to the Treasury and Civil Service Committee, as reported in its first report dealing with Government lending to or borrowing from, as he chose to describe it, the energy industries. He said:
What such industries are doing"—
he was referring to industries that were required to raise revenue beyond what they regarded as necessary for their economic success—
is actually lending money to the Government, whereas in the case of a positive external financing limits the Government is lending money to the industries.
That seems a neat way of wrapping up the two
alternatives — at least until we hear what the Select Committee said on the subject:
Subsequently in written and oral answers to us, we have established that only the British Gas Corporation lends other than temporary surpluses. The BGC deposits attract interest, as do other temporary surplus funds placed by industries within the public sector. In other cases, industries use their surpluses to reduce their financing expenses by paying off existing loans or by reducing their leasing commitments.
In a statement of masterly reticence, the Select Committee went on:
We have experienced considerable difficulty in ascertaining the precise accounting treatment of negative external financing limits, and accordingly we propose to take more evidence".
The new clause aims to provide a circumstance in
which the Chancellor and Chief Secretary are obliged to tell the truth to the House, a circumstance in which the Chancellor is not enabled to be evasive before Select Committees, a circumstance in which the situation is clearly and plainly set out. I look forward to hearing the Chief Secretary using all his ingenuity in explaining why the House is not entitled to know the real effects on the Budget, on the PSBR and on the Revenue of the public utilities' financing requirements.
I will give an example of the difficulty that we have had in the past in obtaining the most simple answers to the most straightforward questions. I refer to the first report of the Energy Select Committee, paragraph 46 of which dealt with the recent electricity financing targets and the consequent price increase that resulted from them. The Select Committee said:
the industry is being required by the Government … to make payment to the Treasury in 1984–85 of some £360 million over and above the figure of £380 million which would be consistent with the Financial Target.
Earlier the Select Committee reported:
The proposed increase is not needed in order to maintain electricity at an economic price. The industry believes that its current prices"—
that is, the prices before the proposed increase—
are equivalent to a broadly mid point view on Long Run Marginal Costs.
In paragraph 44, the Select Committee said:


the Electricity Council believes, almost a year after the Financial Target was set in the light of the changed circumstances since then, that a 2 per cent. price increase on 1 April"—
which was a 2 per cent. increase in electricity prices in April of this year—
is inconsistent with its Financial Target and is not required on grounds of economic pricing.
Though that is the view of the industry, as reported by the Select Committee, the Chancellor and his supporting Ministers persist in arguing that the increase was made to obtain a viable pricing structure. However, we know that the increase was made so as to make an adjustment to the PSBR that the Government felt was appropriate at the time of the Budget.
Our new clause is intended to avoid the sort of sleight of hand that the Government have perpetrated over the enforced electricity price increase—an increase that the Government have always defended by saying that it was less than the rate of inflation since the previous increase. No doubt the Chief Secretary will repeat that tonight. However, I have no doubt that in his calmer moments he shares the view that simply to say that we are increasing the price in some way related to the going rate of inflation is in itself an admission that the price increase is concerned not with economic pricing, but with political considerations which may or may not be reasonable; with social considerations which may or may not be right; but not with considerations directly related to the economic pricing of the product. They are considerations which should be reflected in Government policy by the sort of statement that we suggest in the new clause.
It is not only electricity where this problem has come about. I will give another example, which I offered to the Chief Secretary when we debated the Government's public expenditure plans some months ago. On that occasion he was unable to answer my question, not least because he could not find the appropriate page in the gas accounts. I read the quotation to him then and I shall do so again this evening. The right hon. and learned Gentleman has had six months to consider the matter, and he can probably answer my question when he replies.
When the gas price increase was announced, it was justified as a necessity to increase the return on capital of the gas producers. It was said that the return was only 2 per cent. I advise the right hon. and learned Gentleman to listen to me and not to talk to his Front Bench colleagues. He will lose his place again if he does not listen to my question. Anyone who watched his performance six months ago will not want to see it repeated. We remember that he could not find a way round the numbers. I suggest that he listens to my argument and attempts to rebut it when his chance comes.
It was said originally that there had to be an increase in gas prices because there was only a 2 per cent. return on capital invested in the industry. We now know—this appears in the industry's accounts—that its operating profit as a percentage of real capital was about 5·7 per cent. That was originally the measure, the test and the criterion of success of the British Gas Corporation. By measuring its success against that criterion, the gas industry was exceeding the target set for it by the Government by nearly 60 per cent. As it was exceeding its target by that amount and as the Government wanted justification for increasing gas prices and imposing an indirect tax, they changed the criterion by which to judge the success of the industry.
The British Gas Corporation refers to the change of criterion in its accounts. it states:
The corporation believe that the Secretary of State will by order arrange for the disposal without compensation. Accordingly provision has been made for an estimated loss … which is expected to amount to £285 million.
The Government then sold off about £300 million of the industry's assets. They judged its success by the use of a criterion that was constructed around the sale and insisted that the industry increase its prices to compensate for the phoney reductions that the Government had arranged in the apparent profitability of the industry.
I could continue with example after example of the way in which the Government have manipulated, or attempted to manipulate, the appearance of the finances of the energy industries to justify a tax on energy, on fuel, on gas or on electricity.
On another occasion we might wish to debate whether such a tax is appropriate. I am heartily opposed to the levying of such taxes, especially on those who already find their fuel bills almost impossible to pay and who suddenly discover that they are making an indirect tax contribution to the Government's financial strategy. The argument now is not whether there should be a surplus, not whether there should be a profit, which the industry says it does not need and does not want, and not whether the Government should milk off the profit and use it as taxes are normally used, but whether the Government should be open in telling the House and the country what they propose to do. I am fascinated to hear how the Chief Secretary will defend the concept that the Government should keep their surreptitious tax-raising to themselves.

Mr. Geoffrey Dickens: When I first came to the House in 1979 one of the pieces of legislation that the Conservative Government placed before the House which caused me considerable unease was that which sought to impose increases in gas prices. At that time I thought that the Treasury was seeking to cream off taxes in a new way. Therefore, I have much sympathy with the Opposition on this occasion. The then Secretary of State for Energy, my right hon. Friend the Member for Guildford (Mr. Howell), was unable to persuade me differently, as was the Government Chief Whip. Perhaps that is why I am still sitting on the Back Benches.
The British Gas Corporation and the Government knew full well that for years they had been spending millions of pounds on television advertising of cheap North sea gas "at the turn of a switch". Many people used their life savings and took out loans to change from other forms of energy such as oil, electricity and solid fuel to gas to heat their homes. I recorded at that time that more than 1 million people and many companies had made the switch. Gas was the cheap form of energy.
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My Government stepped in to put before the House legislation giving authority to raise gas prices three years in succession. I was unhappy about that, but I was more unhappy about the Government following that measure a little later with the Gas Levy Act 1981 enabling them to cream off the profits from gas sales.
All hon. Members know that the British Gas Corporation made tremendous profits — more than it needed to make. I like any good, straightforward, honest legislation, but I am unhappy when we do things through


the back door. In the Tea Room, 40 Conservative Members felt the same, but they all succumbed to pressure. On that night in 1979 I was left standing, exactly as I am this evening—the only Conservative Member prepared to speak his mind plainly. I did not support my Government. If this measure were now put to a vote, I certainly would not support the Government.
I want to hear from my right hon. and learned Friend the Chief Secretary—I know that much work lies before us tonight—why he feels that the Government cannot present to the House an honest statement of the financing arrangements.

Mr. James Wallace: I shall
speak briefly to give the support of Liberal Members to this new clause. It is clear that the new clause is designed to promote local government, and we support it on that ground. It is equally clear that the general financing limits that the Government impose on the gas and electricity industries have a significant effect on the public sector borrowing requirement. That effect seems likely to increase in the next few years.
Table 1·6 of "The Government's Expenditure Plans 1984–85 to 1986–87" shows that the estimated outturn of total external finance for 1983–84 is £2·5 billion, which is expected to fall to £90 million in 1986–87. The small print following that table states:
By far the largest amounts of external finance continue to be for British Rail and the National Coal Board.
Implicit in that statement are greater demands to pay back profits in the gas and electricity supply industries.
It is clear that the new clause will make the Government face up to the consequences of their demands on those industries. When the most recent requirement on those industries was made known last autumn, hon. Members found, on questioning the Secretary of State for Energy during Question Time and the debate on the Government's reply to the report of the Select Committee on Energy, that the Government tried to hide behind a smokescreen of attempted justifications for the price increases by saying that the increases were less than the rate of inflation and comparing the increases under the Conservative Government with those under the Labour Government. The Government did not face up to the fact that they were taxing by the back door.
It is a matter of regret that the new clause does not go far enough. I am not criticising the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), but, as he said, there may be occasions when we might wish to debate the back door tax consequences resulting from the demands made of the energy supply industries. They affect individuals. It is a bad form of regressive taxation on those who are already struggling to deal with their own fuel bills
and has an effect on industry, particularly energy-intensive industries that already have to struggle to compete with foreign competitors who, it appears, are charged lower energy costs than our native industries.
For those reasons and in the interest of open government and making the Government face up to the consequences of their own action, I support the new clause. The Select Committee said in paragraph 50 of its report:
If, however, the Government decides that it is necessary, on revenue-raising grounds, to require the electricity industry to increase its prices in order to ensure that its greatly enlarged

negative EFL can be met, then this should be openly and honestly avowed. The Treasury should not seek to cloak a largely fiscal policy decision in the impenetrable garb of economic pricing jargon.
In as much as the new clause tries to show up the Government's true motives, it has our support.

Mr. Kevin Barron: I support new clause 3. One reason is that the Budget speech lacked honesty about the energy policy. That afternoon the Chancellor made great play of the abolition of the tax on paraffin. He said how much that would help domestic consumers in poverty-stricken homes, and was cheered by Conservative Members. However, he actually knocked 1p off the price per gallon of paraffin, making it approximately £1·46 per gallon instead of £1·47 per gallon. That was supposed to cure fuel poverty.
I, too, sit on the Select Committee on Energy, which has looked at policies on gas and electricity over the past 12 months. We found in January this year that the price of domestic gas went up by 4·3 per cent. The hon. Member for Orkney and Shetland (Mr. Wallace) talked about the bad effects on industry, but this year the increase was just in domestic prices. Electricity prices rose in April this year. There was a 2 per cent. rise in the cost of domestic electricity.
This year the energy tax in both industries was directly related to the domestic market. There are also more than 120,000 disconnections of domestic heating and lighting in homes in Britain annually. For an energy-rich country such as ours, that is a disgrace. The Government should try to avoid that, rather than trying to make it worse by taxing energy at this crude source.
When the Select Committee considered electricity prices we came upon a Coopers and Lybrand report that was instigated in 1981 by the then Secretary of State for Energy, now the Chancellor of the Exchequer. The report had been kept under the wraps in Whitehall and was brought out only this year. That firm of City accountants, asked by the Government to look into the electricity supply industry, recommended that domestic and industrial electricity prices should be reduced. How much was a matter for debate, according to the report, but it was conclusive in believing that they should be reduced, and that the system of pricing in the electricity supply industry was wrong and unfounded.
If the price of electricity had been reduced as a result of that report, there might have been fewer domestic disconnections, more competitive industry and greater use of electricity. The NCB and the NUM might not then have been involved in an 18-week strike about an alleged overproduction of 4·4 million tonnes of coal. Sooner or later, someone will have to apply simple economics to these matters instead of hiding things all the time and forcing one industry into difficulties by putting a fuel tax on another. British Gas is currently £300 million in the black with the Treasury and the Treasury paying interest on that. Hiding figures of that kind simply creates wider problems in the economy at large. It is nonsense to be arguing about whether pits are economic when we have reports showing that electricity prices are not soundly based.
We need more honesty about fuel costs. New clause 3 will ensure that any Government will have to state annually exactly what they are doing with domestic and industrial energy charges. For that reason, the whole House should support the new clause.

Dr. Marek: I agree with my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) that the external financing limits on gas and electricity are a form of fuel tax which is hidden from public perception by the way in which it has been presented to the country, as I shall describe in more detail shortly. I also agree with the comments of my hon. Friend the Member for Rother Valley (Mr. Barron). The hon. Member for Littleborough and Saddleworth (Mr. Dickens), too, has my respect for the statements that he has made.
The first report of the Select Committee on Energy states in paragraph 51:
The Treasury witnesses did not strengthen their case by the manner in which they chose to present it to the Committee. An honest statement of the constraints placed upon their freedom to speak would have been more acceptable than the disingenuous claim that they knew no more about the Electricity Council's views than they had read in the newspapers.
I cannot judge whether the Treasury witnesses were deliberately lying or merely being disingenuous, as I was not a member of the Select Committee, but the report states in thick print that an honest statement would have been more acceptable than the disingenuous claims reported to have been made by the Treasury.
The matter goes to the root of democratic government and of the question of freedom of information. Are we to know what we have the right to know? Shall we be told whether civil servants who give us information genuinely do not know the answer or that they know the answer but have been told by their masters, the Government, not to give it? I would prefer them to say honestly that they have been instructed by the Government not to give the information.
10.45 pm
Page ix of the Select Committee's report refers to the gas price increase and to the proposed electricity price increase. The most significant paragraph states:
We find the whole process by which the ESI's EFL for 1984–85 was set, quite apart from the figure itself, extremely disturbing, since it appears to have almost completely inverted the normal procedure.
We have all found the process disturbing and perplexing. We do not know how the figure was arrived at, although some of my hon. Friends have suggested possible ways in which the EFLs may have been calculated. If new clause 3 is adopted, the onus will be on the Treasury to state in the Red Book exactly how the EFL is arrived at and what impact it will have on the public sector borrowing requirement.
To support my claim that there has been obfuscation, and that it is very difficult for Opposition Members, let alone the general public, to know what is going on, I can point to a column in the Financial Times today about a
report by the London Business School, the Institute of Public Sector Management and the Association of Certified Accountants, criticising Treasury documents. The report is quoted as follows:
 'The documents currently produced to give the Government's expenditure proposals are the result of unco-ordinated historical developments.' They are … based on precedent and the needs of those who produce them".
A third factor may be that the documents are designed to be evasive and difficult to understand because in certain cases the Government do not want the Opposition or the public to understand what they are doing. The Government price increases for electricity are seen by us as an extra tax

on the public. It is easy to see that certain members of the Government would want to make that situation difficult for the public to understand.

Mr. Peter Rost: The hon. Gentleman has quoted the Energy Select Committee, of which I am a member. Would he explain whether he objects in principle to a nationalised industry making a surplus, from which the shareholder—the nation—can benefit? That surplus can be used to subsidise those nationalised industries for which the shareholder has to continue to provide huge subsidies, such as the coal industry. Would he not accept that the surplus obtained by the Treasury from the gas and electricity industries together does not equal the amount that has to be paid to subsidise the coal industry?

Dr. Marek: I can answer that. I have no objection at all to efficient and well-run industries such as the electricity generating industry making a profit, but they should not be making a huge profit. It is not the job of the Government to use the profits of one nationalised industry to cancel out the losses of another. It is the job of the Government to take the whole of their revenue and balance it out so that no group of citizens is disproportionately hit by any of its decisions. To say that the electricity supply industry makes a huge profit, and that therefore it must subsidise the railways or the farmers from that profit, is too narrow a view. The Government should take a much wider view. I have no objection to the electricity supply industry making a profit, but the profit should not be too large. The authors of the report which is mentioned in the Financial Times also criticise the Government for lack of clarity in defining Government expenditure. I agree that it would be far simpler if the Government made their public expenditure documents more intelligible. We can understand the gist if we spend time on them, but Members of Parliament do not have time so we often put them away and see what the journalists think the next day.
The authors of the report tried to establish total Government expenditure from last year's spending White Paper. It took them a long time and they discovered four totals that varied by £3 billion. I am not sure whether to be aghast, utterly surprised or not surprised. It worries me, however, and new clause 3 would remedy that. It puts the onus on the Government to equate the EFLs of the electricity and gas supply industries to assess the effect on the PSBR. Conservative and Labour Members disagree violently on economic policy, but I think that we are all interested to know what PSBR we want for any year and how it is composed. Opposition Members believe that, in recession, we should spend on infrastructure as we cannot expect manufacturing industry to build a superstructure in the absence of an infrastructure. Conservative Members have their own little theories that fall into ashes as clay follows day in 1984.
Even if the Opposition cannot get the economic policies that we want, we and the public would like a simple set of figures that correlate EFLs in the gas and electricity industries to see how they impinge on the PSBR. I hope that the Chief Secretary will take those points seriously. If he cannot accept new clause 3 now, he should get his civil servants to examine the matter with a view to simplifying the voluminous material that appears before us each year.

Mr. Eddie Loyden: I support what my right hon. Friend the Member for Birmingham,


Sparkbrook (Mr. Hattersley) said about the Government's dishonesty about indirect taxation on fuel. The issue goes far beyond the relationship between fuel taxation and the balance of payments. In many parts of the country, especially where there is high unemployment, fuel is becoming a luxury for many families.
We should consider the Government's attitude to fuel policy. Although this debate is about the Government's attitude to indirect taxation, there is a human dimension in terms of disconnections that Opposition Members see in their constituencies. People cannot understand—and why should they?—why the Government make viable industries impose price increases on consumers. Conservative Members have not mentioned consumer interest. They are interested only in profit.
Consumer interest has been much affected by the Government's decision on this matter. This is one of the foremost problems that constituents raise. They cannot understand why a country that is rich in fuel energy should resort to increasing prices beyond what the industry demands.
There is something radically wrong here. It is a question not just of the effect upon the balance of payments and the dishonesty of the approach but of energy policy in general. It is time that we began to recognise that the resources available to us are for the purpose not only of making profits but of providing for people's energy needs. It is a scandal and shame that year after year people in this country should be dying from hypothermia while the Government impose taxes on the basic essentials of fuel and light. The importance of the effects of this policy on the consumers of gas and electricity ought not to be understated.

The Chief Secretary to the Treasury (Mr. Peter Rees): We have had a most interesting debate. The substance of the remarks of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) perhaps went a little outside the form of the new clause, which provides:
`Upon the passing of this Act, the Chancellor of the Exchequer shall include in the annual Financial Statement and Budget Report a statement showing the impact on the public sector borrowing requirement of the external financial limits of the gas and electricity industries.'.
What appears to have escaped the attention of the right hon. Gentleman—and I am puzzled about this, because I know that he is assiduous in these matters—is that the external financing limits of the nationalised industries are set out, not once but twice, in the course of the year. For the year ahead, they are set out in the autumn statement. I know, from our exchanges in the past, that the right hon. Gentleman likes to be reassured of the page and the reference. I refer him to the autumn statement 1983, page 22, table 2·3. There he will find the external financing limits of all the nationalised industries for the year ahead. The second occasion when these matters are set out in even greater detail is in the White Paper on public expenditure. Again I refer the right hon. Gentleman to page 134, and thereafter, where he will find set out the EFLs of each of the nationalised industries, breaking them down industry by industry.
It is true that the external financing limits are not reproduced in the Red Book, to which the right hon. Gentleman specifically referred. The Red Book sets out the projected level of the PSBR and the overall pattern of

public expenditure. By relating the figures in the autumn statement and in the public expenditure White Paper to the figures in the Red Book, it is easy to see the likely impact of the PSBR and the EFLs. I am a little at a loss to know what additional information the House feels is required of the Government of the day to cast some illumination on the matter.
I deal next briefly with the principles underlying energy prices. It may surprise the right hon. Member for Sparkbrook to know that we follow precisely the same principles as were set out, but not necessarily followed, in the Green Paper produced by his right hon. Friend the Member for Chesterfield (Mr. Benn) in 1978. I seem to recall that the right hon. Member for Sparkbrook was then the Secretary of State for Prices and Consumer Protection, so he no doubt was concerned with the wording of that Green Paper. Because it contains a statement of some importance, I should perhaps read it:
The principle that prices should reflect the costs of supply on a continuing basis while providing an adequate return on capital is now firmly established … the relevant cost is the cost incurred or saved in expanding or contracting supplies in the present or in the future rather than an average of past costs.
Those are the principles that we attempt to follow. The Labour Administration did not follow those principles precisely, and I shall remind the right hon. Genteleman and the House of some of the salient facts. For example, between 1974 and 1979, domestic electricity prices increased by 169 per cent., and between 1979 and 1983 by 83 per cent. Over the same periods, industrial electricity prices increased by 134 per cent. and 67 per cent., and industrial gas prices by 291 per cent. and 85 per cent. We are following as faithfully as possible the general principles that had been enunciated, but it seems that the Labour Administration went a little wide of their target.
11 pm
Several hon. Members, in particular my hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) and the hon. Member for Liverpool, Garston (Mr. Loyden) drew attention to the impact of energy prices on less well-off sections of the community. I hope that I can reassure them and the House by saying that the Government are spending about £380 million a year to cushion the impact of energy prices, and the heating addition is now at the highest real level ever. Therefore, both in substance and in form, we more than meet the points made by the right hon. Member for Sparkbrook and his colleagues.

Mr. Hattersley: The Chief Secretary is invariably as bad as we expect him to be, and today was no exception. He knows that by comparing the PSBR figure in the Red Book with the figures for external financing to which I referred, and which were published on previous occasions, it is not possible to identify clearly the impact of fuel taxes on the PSBR. If he was right, and the three sets of figures were there, available to anyone, and one had only to be subtracted from the other to obtain the results that we see, surely even this obdurate Government would not vote against a new clause that required them to do nothing more than a piece of simple arithmetic and publish it in the Red Book once a year. By not having the matter clearly set out, the Government are able to obscure the effect of their energy pricing policy.
Once again, the Chief Secretary has failed even to deal with the point that I have raised in two debates. He then misunderstood it, and now he has ignored it. The


Government claim that, like their predecessors, they have struggled for a fuel pricing policy that is related to the needs of the industry, but they have changed the criteria by which the needs are measured. They have changed them in the case of gas specifically to impose an unnecessary price increase. It is that that we wish to expose, but the Government's majority will temporarily prevent us from doing so. Nobody, in the House or outside, will delude themselves into believing that it will not be increasingly understood in the country that the Government, first, impose a fuel tax on domestic consumers and, secondly, make a pathetic attempt to pretend that they do not.

Question put, That the clause be read a Second time:—

The House divided: Ayes 189, Noes 319.

Division No. 401]
[11.05 pm


AYES


Adams, Allen (Paisley N)
Dewar, Donald


Anderson, Donald
Dickens, Geoffrey


Archer, Rt Hon Peter
Dixon, Donald


Ashdown, Paddy
Dobson, Frank


Ashley, Rt Hon Jack
Dormand, Jack


Ashton, Joe
Dubs, Alfred


Atkinson, N. (Tottenham)
Dunwoody, Hon Mrs G.


Bagier, Gordon A. T.
Eastham, Ken


Banks, Tony (Newham NW)
Evans, John (St. Helens N)


Barnett, Guy
Ewing, Harry


Barron, Kevin
Fatchett, Derek


Beckett, Mrs Margaret
Faulds, Andrew


Beith, A. J.
Field, Frank (Birkenhead)


Bell, Stuart
Fields, T. (L'pool Broad Gn)


Benn, Tony
Fisher, Mark


Bennett, A. (Dent'n &amp; Red'sh)
Flannery, Martin


Bermingham, Gerald
Foster, Derek


Blair, Anthony
Foulkes, George


Boothroyd, Miss Betty
Fraser, J. (Norwood)


Boyes, Roland
Freeson, Rt Hon Reginald


Brown, Gordon (D'f'mline E)
Freud, Clement


Brown, Hugh D. (Provan)
George, Bruce


Brown, N. (N'c'tle-u-Tyne E)
Gilbert, Rt Hon Dr John


Brown, R. (N'c'tle-u-Tyne N)
Godman, Dr Norman


Brown, Ron (E'burgh, Leith)
Golding, John


Bruce, Malcolm
Gould, Bryan


Buchan, Norman
Gourlay, Harry


Caborn, Richard
Hamilton, W. W. (Central Fife)


Callaghan, Rt Hon J.
Hardy, Peter


Callaghan, Jim (Heyw'd &amp; M)
Harman, Ms Harriet


Campbell-Savours, Dale
Harrison, Rt Hon Walter


Canavan, Dennis
Hart, Rt Hon Dame Judith


Carlile, Alexander (Montg'y)
Hattersley, Rt Hon Roy


Carter-Jones, Lewis
Heffer, Eric S.


Cartwright, John
Hogg, N. (C'nauld &amp; Kilsyth)


Clark, Dr David (S Shields)
Holland, Stuart (Vauxhall)


Clarke, Thomas
Home Robertson, John


Clay, Robert
Howell, Rt Hon D. (S'heath)


Clwyd, Mrs Ann
Howells, Geraint


Cocks, Rt Hon M. (Bristol S.)
Hoyle, Douglas


Cohen, Harry
Hughes, Dr. Mark (Durham)


Coleman, Donald
Hughes, Robert (Aberdeen N)


Conlan, Bernard
Hughes, Roy (Newport East)


Cook, Robin F. (Livingston)
Hughes, Sean (Knowsley S)


Corbett, Robin
John, Brynmor


Corbyn, Jeremy
Johnston, Russell


Cowans, Harry
Jones, Barry (Alyn &amp; Deeside)


Cox, Thomas (Tooting)
Kennedy, Charles


Craigen, J. M.
Kilroy-Silk, Robert


Crowther, Stan
Kinnock, Rt Hon Neil


Cunliffe, Lawrence
Kirkwood, Archy


Cunningham, Dr John
Lambie, David


Dalyell, Tam
Leighton, Ronald


Davies, Rt Hon Denzil (L'lli)
Lewis, Ron (Carlisle)


Davies, Ronald (Caerphilly)
Lewis, Terence (Worsley)


Davis, Terry (B'ham, H'ge H'l)
Litherland, Robert


Deakins, Eric
Lloyd, Tony (Stretford)





Lofthouse, Geoffrey
Robinson, G. (Coventry NW)


Loyden, Edward
Rogers, Allan


McCartney, Hugh
Ross, Stephen (Isle of Wight)


McDonald, Dr Oonagh
Rowlands, Ted


McKay, Allen (Penistone)
Sedgemore, Brian


McKelvey, William
Sheerman, Barry


McNamara, Kevin
Sheldon, Rt Hon R.


McTaggart, Robert
Shore, Rt Hon Peter


McWilliam, John
Short, Ms Clare (Ladywood)


Madden, Max
Silkin, Rt Hon J.


Marek, Dr John
Skinner, Dennis


Marshall, David (Shettleston)
Smith, C.(Isl'ton S &amp; F'bury)


Martin, Michael
Smith, Rt Hon J. (M'kl'ds E)


Maxton, John
Snape, Peter


Meacher, Michael
Soley, Clive


Meadowcroft, Michael
Spearing, Nigel


Michie, William
Steel, Rt Hon David


Mikardo, lan
Stott, Roger


Millan, Rt Hon Bruce
Strang, Gavin


Miller, Dr M. S. (E Kilbride)
Straw, Jack


Mitchell, Austin (G't Grimsby)
Thomas, Dafydd (Merioneth)


Morris, Rt Hon A. (W'shawe)
Thomas, Dr R. (Carmarthen)


Morris, Rt Hon J. (Aberavon)
Thompson, J. (Wansbeck)


Nellist, David
Thorne, Stan (Preston)


Oakes, Rt Hon Gordon
Tinn, James


O'Brien, William
Torney, Tom


Park, George
Wainwright, R.


Patchett, Terry
Wallace, James


Pavitt, Laurie
Wardell, Gareth (Gower)


Pendry, Tom
Weetch, Ken


Penhaligon, David
Welsh, Michael


Pike, Peter
Williams, Rt Hon A.


Powell, Raymond (Ogmore)
Wilson, Gordon


Prescott, John
Winnick, David


Radice, Giles
Woodall, Alec


Randall, Stuart
Wrigglesworth, Ian


Redmond, M.



Rees, Rt Hon M. (Leeds S)
Tellers for the Ayes:


Richardson, Ms Jo
Mr. James Hamilton and 


Robertson, George
 Mr. Frank Haynes.




NOES


Adley, Robert
Burt, Alistair


Aitken, Jonathan
Butcher, John


Alexander, Richard
Butterfill, John


Alison, Rt Hon Michael
Carlisle, John (N Luton)


Ancram, Michael
Carlisle, Kenneth (Lincoln)


Arnold, Tom
Carlisle, Rt Hon M. (W'ton S)


Aspinwall, Jack
Carttiss, Michael


Atkins, Rt Hon Sir H.
Cash, William


Atkins, Robert (South Ribble)
Chalker, Mrs Lynda


Atkinson, David (B'm'th E)
Chope, Christopher


Baldry, Anthony
Churchill, W. S.


Banks, Robert (Harrogate)
Clark, Dr Michael (Rochford)


Batiste, Spencer
Clark, Sir W. (Croydon S)


Beaumont-Dark, Anthony
Clarke, Rt Hon K. (Rushcliffe)


Bellingham, Henry
Clegg, Sir Walter


Bendall, Vivian
Cockeram, Eric


Benyon, William
Colvin, Michael


Best, Keith
Conway, Derek


Bevan, David Gilroy
Cope, John


Biffen, Rt Hon John
Cormack, Patrick


Biggs-Davison, Sir John
Corrie, John


Blaker, Rt Hon Sir Peter
Couchman, James


Body, Richard
Cranborne, Viscount


Bonsor, Sir Nicholas
Critchley, Julian


Bowden, A. (Brighton K'to'n)
Currie, Mrs Edwina


Bowden, Gerald (Dulwich)
Dicks, Terry


Boyson, Dr Rhodes
Dorrell, Stephen


Brandon-Bravo, Martin
Douglas-Hamilton, Lord J.


Bright, Graham
Dover, Den


Brinton, Tim
du Cann, Rt Hon Edward


Brooke, Hon Peter
Dunn, Robert


Brown, M. (Brigg &amp; Cl'thpes)
Durant, Tony


Browne, John
Dykes, Hugh


Bruinvels, Peter
Emery, Sir Peter


Bryan, Sir Paul
Evennett, David


Buchanan-Smith, Rt Hon A.
Eyre, Sir Reginald


Budgen, Nick
Fairbairn, Nicholas


Bulmer, Esmond
Fallon, Michael






Farr, Sir John
Knight, Mrs Jill (Edgbaston)


Favell, Anthony
Knowles, Michael


Fenner, Mrs Peggy
Knox, David


Finsberg, Sir Geoffrey
Lamont, Norman


Fletcher, Alexander
Lang, Ian


Forman, Nigel
Latham, Michael


Forsyth, Michael (Stirling)
Lawler, Geoffrey


Forth, Eric
Lawrence, Ivan


Fowler, Rt Hon Norman
Lawson, Rt Hon Nigel


Fox, Marcus
Lee, John (Pendle)


Franks, Cecil
Leigh, Edward (Gainsbor'gh)


Freeman, Roger
Lennox-Boyd, Hon Mark


Fry, Peter
Lester, Jim


Gale, Roger
Lewis, Sir Kenneth (Stamf'd)


Galley, Roy
Lightbown, David


Gardiner, George (Reigate)
Lilley, Peter


Gardner, Sir Edward (Fylde)
Lloyd, Ian (Havant)


Garel-Jones, Tristan
Lloyd, Peter, (Fareham)


Glyn, Dr Alan
Lord, Michael


Goodhart, Sir Philip
McCurley, Mrs Anna


Goodlad, Alastair
Macfarlane, Neil


Gorst, John
MacGregor, John


Gow, Ian
MacKay, Andrew (Berkshire)


Gower, Sir Raymond
MacKay, John (Argyll &amp; Bute)


Grant, Sir Anthony
Maclean, David John


Greenway, Harry
McNair-Wilson, P. (New F'st)


Gregory, Conal
McQuarrie, Albert


Griffiths, E. (B'y St Edm'ds)
Madel, David


Griffiths, Peter (Portsm'th N)
Major, John


Grist, Ian
Malins, Humfrey


Ground, Patrick
Malone, Gerald


Hamilton, Hon A. (Epsom)
Maples, John


Hamilton, Neil (Tatton)
Marland, Paul


Hannam,John
Marshall, Michael (Arundel)


Hargreaves, Kenneth
Mates, Michael


Harris, David
Maude, Hon Francis


Harvey, Robert
Mawhinney, Dr Brian


Haselhurst, Alan
Maxwell-Hyslop, Robin


Havers, Rt Hon Sir Michael
Mayhew, Sir Patrick


Hawkins, C. (High Peak)
Merchant, Piers


Hawkins, Sir Paul (SW N'folk)
Meyer, Sir Anthony


Hawksley, Warren
Miller, Hal (B'grove)


Hayes, J.
Mills, Iain (Meriden)


Hayhoe, Barney
Mills, Sir Peter (West Devon)


Hayward, Robert
Miscampbell, Norman


Heathcoat-Amory, David
Mitchell, David (NW Hants)


Heddle, John
Moate, Roger


Henderson, Barry
Monro, Sir Hector


Heseltine, Rt Hon Michael
Moore, John


Hickmet, Richard
Morris, M. (N'hampton, S)


Hicks, Robert
Morrison, Hon C. (Devizes)


Higgins, Rt Hon Terence L
Morrison, Hon P. (Chester)


Hind, Kenneth
Moynihan, Hon C.


Hirst, Michael
Mudd, David


Hogg, Hon Douglas (Gr'th'm)
Murphy, Christopher


Holland, Sir Philip (Gedling)
Neale, Gerrard


Holt, Richard
Needham, Richard


Hooson, Tom
Nelson, Anthony


Hordern, Peter
Newton, Tony


Howard, Michael
Nicholls, Patrick


Howarth, Alan (Stratf'd-on-A)
Norris, Steven


Howarth, Gerald (Cannock)
Onslow, Cranley


Howe, Rt Hon Sir Geoffrey
Oppenheim, Philip


Howell, Rt Hon D. (G'ldford)
Ottaway, Richard


Howell, Ralph (N Norfolk)
Page, Richard (Herts SW)


Hubbard-Miles, Peter
Parkinson, Rt Hon Cecil


Hunt, David (Wirral)
Parris, Matthew


Hunter, Andrew
Patten, Christopher (Bath)


Jackson, Robert
Patten, John (Oxford)


Jessel, Toby
Pawsey, James


Johnson-Smith, Sir Geoffrey
Pollock, Alexander


Jones, Robert (W Herts)
Porter, Barry


Jopling, Rt Hon Michael
Powell, William (Corby)


Joseph, Rt Hon Sir Keith
Powley, John


Kellett-Bowman, Mrs Elaine
Prentice, Rt Hon Reg


Kershaw, Sir Anthony
Price, Sir David


Key, Robert
Prior, Rt Hon James


King, Roger (B'ham N'field)
Proctor, K. Harvey


King, Rt Hon Tom
Pym, Rt Hon Francis


Knight, Gregory (Derby N)
Raffan, Keith





Rathbone, Tim
Taylor, John (Solihull)


Rees, Rt Hon Peter (Dover)
Taylor, Teddy (S'end E)


Renton, Tim
Tebbit, Rt Hon Norman


Rhodes James, Robert
Temple-Morris, Peter


Rhys Williams, Sir Brandon
Terlezki, Stefan


Ridley, Rt Hon Nicholas
Thatcher, Rt Hon Mrs M.


Ridsdale, Sir Julian
Thomas, Rt Hon Peter


Rifkind, Malcolm
Thompson, Donald (Calder V)


Roberts, Wyn (Conwy)
Thompson, Patrick (N'ich N)


Robinson, Mark (N'port W)
Thurnham, Peter


Roe, Mrs Marion
Townend, John (Bridlington)


Rossi, Sir Hugh
Townsend, Cyril D. (B'heath)


Rost, Peter
Tracey, Richard


Rowe, Andrew
Trippier, David


Ryder, Richard
Trotter, Neville


Sackville, Hon Thomas
Twinn, Dr Ian


Sainsbury, Hon Timothy
Vaughan, Sir Gerard


Sayeed, Jonathan
Viggers, Peter


Scott, Nicholas
Waddington, David


Shaw, Giles (Pudsey)
Wakeham, Rt Hon John


Shelton, William (Streatham)
Waldegrave, Hon William


Shepherd, Colin (Hereford)
Walden, George


Shepherd, Richard (Aldridge)
Walker, Bill (T'side N)


Silvester, Fred
Wall, Sir Patrick


Sims, Roger
Waller, Gary


Skeet, T. H. H.
Walters, Dennis


Soames, Hon Nicholas
Ward, John


Speller, Tony
Wardle, C. (Bexhiil)


Spencer, Derek
Watson, John


Spicer, Jim (W Dorset)
Watts, John


Spicer, Michael (S Worcs)
Wells, Bowen (Hertford)


Stanbrook, Ivor
Whitfield, John


Stanley, John
Wiggin, Jerry


Stern, Michael
Winterton, Mrs Ann


Stevens, Lewis (Nuneaton)
Winterton, Nicholas


Stevens, Martin (Fulham)
Wolfson, Mark


Stewart, Allan (Eastwood)
Wood, Timothy


Stewart, Andrew (Sherwood)
Yeo, Tim


Stewart, Ian (N Hertf'dshire)
Younger, Rt Hon George


Stokes, John



Stradling Thomas, J.
Tellers for the Noes:


Sumberg, David
Mr. Robert Boscawen and 


Tapsell, Peter
 Mr. Carol Mather.

Question accordingly negatived.

New Clause 6

TAXATION OF LONG-TERM UNEMPLOYED

`Section 27 of the Finance Act 1981 except subsection (9), shall cease to apply to an unemployed person after he or she has been in receipt of social security benefits related to unemployment for a continuous period of one year.'—[Mr. Rooker.]

Brought up, and read the First time.

Mr. Rooker: I beg to move, That the clause be read a Second time.
The thrust of the new clause is simple and requires a simple answer from the Government. We want the Government to say that they will cease taxing the long-term unemployed. It is bad enough for the quality of life that well over 1,250,000 people have been out of work for over a year, nearly 650,000 for two years and over 330,000 for three years, but for the Government to impose a tax on unemployment benefit for all unemployed people, including the long-term unemployed, is not on. This is an opportunity for the Government to rethink.
I accept that the numbers of long-term unemployed subject to tax are few compared with the 1·2 million people who have been out of work for over a year, but at least 25,000 unmarried couples living together as man and wife exist on supplementary benefit, because they are unemployed, and obtain only the single person's tax


allowance. They live on £43·50 a week and will live on £45·55 a week from November until next April. They are building up a tax liability of almost £2 a week for every week that they are in that state. They will be required to meet that tax liability when and if one of each couple returns to work. That is unacceptable.
This year the Government will receive over £700 million in income tax from the unemployed through their unemployment and supplementary benefits. The cost of accepting new clause 6 must be small compared with that amount. Only the Government can estimate the cost of our proposal.
Every day, national and local newspapers throughout the land carry stories about the long-term unemployed who have to have sex operations because they are scared to have more children. We read reports of suicides and the non-accidental deaths of unemployed people. People are frightened to explain such tragedies. We can all see the effect of unemployment on the quality of life, and yet the House allows legislation imposing further financial penalties on fellow citizens.
The mass unemployment from which we are suffering should not be bandied about in statistical juggling by the House or by the Gallery which watches over our affairs. Unemployment is about a way of life. It is about learning where the power is and about understanding the unfairnessesin our system of economic management that bring about mass unemployment in the 1980s.
We cannot solve the problems in a new clause. We cannot solve the problems of the millions who are unemployed and paying or accumulating tax on their benefits. However, in a small way we are able to mitigate the effects of the Government's legislation on the small numbers of long-term unemployed who are, because of family circumstances, subject to penal taxation rates on their meagre benefits.

Mr. Stuart Bell: I welcome the opportunity to follow my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), who cogently explained the purposes of our amendment.
Yesterday, my right hon. Friend the Member for Islwyn (Mr. Kinnock) reminded the House that 1·2 million people have been unemployed for more than a year, 650,000 for more than two years and 356,000 for more than three years. Those are dolorous and doleful figures. The position of the long-term unemployed in Cleveland is especially acute. According to the figures for June, the average unemployment rate there is 20·5 per cent.; male unemployment is 24·5 per cent. and female is 13·7 per cent. The overall figure is 55,038, of which 41,405 represents male unemployment and 13,633 female unemployment. Last year at this time when I made my maiden speech and reported the unemployment figures for the area, they were, not unnaturally, lower than that. Last year 52,531 were unemployed, and that figure has increased by about 3,000. The unemployment figures rise inexorably.
While I do not wish to draw the attention of the House unduly to the economic blizzard to which Ramsay MacDonald referred in 1931, the numbers of those unemployed both in Cleveland and Teesside continue to rise. Notwithstanding the words of the Chancellor of the Exchequer in his Budget statement and his fifth Mais

lecture, unemployment is not coming to an end. That is why we have tabled this simple, modest measure on behalf of the long-term unemployed.
Section 27 of the Finance Act 1981 provided for the taxation of unemployment benefits. The new clause seeks to exempt the long-term unemployed. They are defined as being continuously out of work for more than one year.
I noted that the Chief Secretary, in one of his rather less interesting and less helpful speeches in the debate on the gap between the rich and the poor on Thursday 28 June, declined to give the Government's definition of full employment. However, in 1981 the Government had no compunction about defining what they meant by long-term unemployment. We have always found the Chief Secretary long on platitudes and loose on facts, but even the Government cannot ignore the economic and financial facts that stare them in the face.
Yesterday the Prime Minister said that the economy was "in good shape". That phrase will join the phrases, such as
the pound in your pocket will not be devalued
or
the inflation rate can be cut in half".
The Prime Minister will live to regret them.
While the long-term unemployed languish in a slough of despond of the Government's making, the Chancellor of the Exchequer may wish to take an early opportunity to explain to the House why interest rates are rising. Is it because the City of London prefers to be guided by the M3 definition of the money supply to his definition, which I describe as Little MO and which is based on currency; because of the continued slide in the value of the pound in relation to the dollar and its trade weighting against other currencies; or because he believes that the inflation rate targets for the Government are being undermined?
Those are matters of particular interest to the long-term unemployed, who are looking to the new clause and the House for help.
In some ways, I sympathise with the Chancellor, because his Budget statement was considered benignly by the banks, which reduced their base rates by 0·5 per cent. the following morning. The Stock Exchange took off the following day. Hardly had the Finance Bill reached its Report stage on the Floor of the House than the banks reversed their position and added one full percentage point to their base rates. They have now added 2 per cent. and the Stock Exchange lost about 30 points today. The euphoria which greeted the Budget statement was short-lived and has worn off with the Chancellor's so-called friends in the City.
11.30 pm
However, the Chancellor cannot avoid the responsibility for interest rates going up. He has broad shoulders, as we know, and those broad shoulders must bear the responsibility for what has happened today. The Government of whom he is not only a member but a leading member have failed to get a grip on the miners' strike, which has spilled over into a dockers' strike. They have moved from a policy of an engineered exchange rate of $2·40 to the pound and of interest rates of 20 to 21 per cent. on company overdrafts to near-indifference to the exchange rate and a belief that there should be intervention only if the market is distorted. The failure of the Bank of England to intervene in the national interest to prevent a fall in the value of the pound means that the interest rates


have been used to countervail an external factor—the United States budget deficit. Those matters are all of great concern to the long-term unemployed, because many of them are British home-owners who will have to pay more for their mortgages and purchases, and who will therefore suffer the consequences, as will the rest of us, of the increased inflation that is about to come. All this has happened so that Britain can contribute to the United States economy.
In his Budget speech, the Chancellor made much of the proposition that it was a Budget to reduce inflation; but by pursuing policies of laisser-aller rather than laisser-faire, the Government will be adding to inflation. The long-term unemployed will take no satisfaction from learning that the Government intend to place a moratorium on capital spending by local authorities, and that because the money supply is running out of hand, there may well be a package of emergency public expenditure cuts to reduce the growth of monetary aggregates. All that weighs heavily upon the long-term unemployed, who look to the House for some succour.
The Government are hoping to get by not with good economic management but by sleight of hand. They are clearly relying on sleight of hand, by advancing the payment of VAT on imported goods to the ports and selling public assets, so that they can remain on target. The Bank of England Quarterly Review anticipated the pace of growth of broad money and declared that it was likely to be faster in the early part of the current target period than during the period as a whole. However, the increase in the growth of the money supply cannot be considered in isolation from the falling pound against the dollar and an economy that is being slowly debilitated—strangled to death by the Government's inability to promote good industrial relations.
It was not long ago that the Heads of State and of Government held an economic summit conference in London. They clearly recognised that high interest rates would damage the economies of both developed and developing countries. What does the Chancellor propose to do? He congratulates himself and the Government on the abolition of pay controls, price controls, dividend controls, foreign exchange controls, bank lending controls, hire purchase controls and industrial building controls. Of course, he does not congratulate himself on their corollary —industrial industrial unrest which has spread to the professions, notably the teachers, inflation reductions purchased at a cost of an extra 1 million unemployed, and the abolition of dividend controls which, along with measures that we shall be debating on Monday, requires that the City be regulated in accordance with the Gower report.
Our exchange controls see the pound at ․1·30 and falling and our hire purchase controls, combined with the Chancellor's other measures towards the poor, put goods way beyond the reach of ordinary folk. The abolition of industrial building controls leaves the construction industry much as it has been since the Conservatives took office—in a slough of despair and despond.
We have all this because the Chancellor chases the mirage of reduced taxation on personal incomes. We have all these sacrifices on the altar of greed, for personal aggrandisement, based on the old principle of "I'm all right Jack," with no regard for one's fellow citizens and

without regard for anyone not caught in the Government's safety net. These matters are of great concern to the longterm unemployed. This important new clause would cost the Government little to accept.

Mr. Campbell-Savours: There is no better indicator of the Government's insensitivity to the long-term unemployed than the way in which they have treated that section of society over the taxation of benefits and their failure to appreciate their need for additional support. Under the community programme, people who would otherwise be fully engaged now find, because of the cuts that are being made, that they are offered only part-time employment.
A letter has come my way from the Bishop of Carlisle —a man whom Conservative Members would do well to heed, for he expresses an objective and independent view. He bears no political label. He presents effectively the case for what he believes to be a deprived group—people who, though out of work, are required to pay for the change that is taking place industrially. [Interruption.] Does the hon. Member for Harlow (Mr. Hayes) wish to intervene? If not, he should be quiet. Sedentary interventions from Conservative Members when we are debating issues of great sensitivity ill become them as their constituents' representatives in this House.
The Bishop of Carlisle believes that the unemployed should be more fairly treated. I will read his letter on the subject into the columns of the Official Report so that Conservative Members may refer to his words when their consciences prick them, although I doubt whether their consciences will bother them when they go into the Lobby to vote on this issue. He said that those representing the Church in Cumbria
are aware that poverty and unemployment have become concentrated in pockets of social deprivation. This is true in parts of West Cumbria, and has got appreciably worse in the last few years. Financial hardships affects not just individual families, but whole communities— 'sub-culture' of poverty and depression emerges, and poverty must not just be understood individually. When whole streets and estates are affected by high rates of unemployment and financial hardship, their families which are already in difficulties have their situation greatly worsened.
He continued:
you say that the Government's aim is to 'reduce unemployment'. It appears from recent statistics, as well as statements from senior Conservative politicians, that there will be no appreciable drop in unemployment for the next few years at least and possibly longer. We believe, with many others, that we are now in a period of transition to a new era of 'high technology' which will involve lower numbers of people being in full-time employment. More attention therefore has to be given to the redistribution of wealth in such an emerging society. We are particularly concerned that in this transition, the old unskilled manual working class are having to pay a very high price indeed. As a matter of both compassion and justice, we, together with many other church people and other bodies, would urge you to think again and bring about this small change. It would be one sign of your concern for all members of our society.
Those are the words of the Bishop of Carlisle. He represents — [Interruption.] Conservative Members interject from a sedentary position to pour scorn on the compassionate voice of one of my fellow Cumbrians. What they are doing tonight will be noted in my county. We know that they have no understanding and are inconsiderable and insensitive to the problems of the unemployed, especially the long-term unemployed.
One quarter of my constituents who are out of work have been unemployed for more than 12 months. They demand that Parliament responds to their special


problems. The new clause addresses itself to their problems. We would like to feel that one or two of the 318 Conservative Members might find enough compassion to join Opposition Members in voting for the clause, which will raise the incomes of some of the unemployed who are paying the price for the great changes that are taking place.

Mr. Ian Wrigglesworth: When the Government came into office they outlined an economic policy which has had dire consequences for many throughout the country. Month after month we have had Ministers from the Department of Employment and the Treasury coming to the Dispatch Box and very much regretting the consequences of the policies that they have pursued. This evening the Minister of State, Treasury is provided with an opportunity to do something about the regret that he and his colleagues have expressed from the Dispatch Box on many occasions in past months. I hope that he will respond to the appeals that have been made in support of the new clause by accepting it and alleviating the suffering of the unemployed, especially the long-term unemployed. Many alliance Members would like the Government to go further and introduce the long-term level of supplementary benefit for unemployed people. Unfortunately, the Government have rejected that proposal. New clause 6 is a more modest measure, and I hope that the Government will respond sympathetically.
As the Opposition have pointed out, the army of longterm unemployed represent a scar on the face of many regions, not least in the north-west, Scotland and Wales. A modest measure of this sort could alleviate some of the distress caused by the difficult circumstances those regions face. It is staggering that the unemployed are paying so much tax. As the hon. Member for Birmingham, Perry Barr (Mr. Rooker) said, the unemployed are paying a substantial amount. I hope that the Minister will respond positively to the proposal and encourage his right hon. and hon. Friends to support him in the Division Lobby.

The Minister of State, Treasury (Mr. Barney Hayhoe): The debate has ranged wide of new clause 6. When the hon. Member for Middlesbrough (Mr. Bell) was speaking, I wondered whether we had slipped into Third Reading. Perhaps the hon. Gentleman mixed today's notes with those he intends to use tommorow. I shall concentrate on new clause 6.
As the hon. Member for Birmingham, Perry Barr (Mr. Rooker) made clear, the purpose of the new clause is to exempt from tax benefits paid to those of the unemployed who have been in receipt of benefit for a continuous period of one year. The benefit exempted would therefore be supplementary benefit, since entitlement to unemployment benefit by definition runs out after 12 months. The hon. Gentleman asked me to estimate the cost of the exemption. He knows that in Committee, when I could, I gave estimates of the cost of amendments and proposals. The cost of this new clause is hard to estimate, because statistics are not available on the movement of the longterm unemployed back into employment. The hon. Gentleman will understand that that is the crucial factor in making estimates. I am advised that the cost could be substantial.

Mr. Rooker: Is the Minister telling the House and the country that the Government have no information about those who obtain jobs and have just experienced a period of unemployment?

Mr. Hayhoe: I am saying that there are no reliable statistics on which one can base an estimate of the proposal's cost. We cannot accept the proposal. because it would certainly create anomalies. More importantly, the whole debate—when it has been precise and relevant to the new clause—has been based with one exception, on a total fallacy. The hon. Member for Perry Barr said that we must cease taxing the long-term unemployed. That point was taken up by the hon. Member for Workington (Mr. Campbell-Savours), who said that the effect of the new clause would be to raise the income of the long-term unemployed. In fact, the new clause would not increase disposable income for the unemployed. It would postpone the start of tax payments after a return to employment, so the benefits would flow not to people who were employed but to those who were unemployed. The benefits are going wholly to people who have been unemployed for a long time and have returned to work. The new clause would mean that the tax they paid in their new employment would be lower than if the new clause were not implemented.
There is an exceptional circumstance, which the hon. Member for Perry Barr, as ever, accurately commented upon, of a group of unmarried couples affected by the interrelationship of the ways in which the Inland Revenue deals with married and unmarried couples, which is different from the way in which the Department of Health and Social Security deals with them. The hon. Gentleman knows the problems, as I do, not just in this but in a wider context. I assure him that with regard to the specific problem to which he referred, my hon. Friend the Financial Secretary is well aware of the position. I am advised that the actual amount is not nearly £2 a week, which the hon. Gentleman mentioned, but, as a result of the change in the tax thresholds, is now down to £1.50 a week. At present, there is little evidence of actual hardship being caused by what, I accept, is the theoretical position. If there is evidence of hardship being caused to unmarried couples who suffer long-term unemployment, my hon. Friend the Financial Secretary will look at the matter again.
As most of the debate has been based on the fallacy that the new clause would help the long-term unemployed, and for other reasons that I have given, I recommend the House to reject it if it is pressed to a Division.

Mr. Rooker: I do not accept the Minister's answer. I
ask my hon. Friends to vote for the new clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 174, Noes 312.

Division No. 402]
[11.52 pm


AYES


Adams, Allen (Paisley N)
Benn, Tony


Archer, Rt Hon Peter
Bennett, A. (Dent'n &amp; Red'sh)


Ashdown, Paddy
Bermingham, Gerald


Ashley, Rt Hon Jack
Blair, Anthony


Ashton, Joe
Boothroyd, Miss Betty


Atkinson, N. (Tottenham)
Boyes, Roland


Bagier, Gordon A. T.
Bray, Dr Jeremy


Banks, Tony (Newham NW)
Brown, Gordon (D'f'mline E)


Barnett, Guy
Brown, N. (N'c'tle-u-Tyne E)


Barron, Kevin
Brown, R. (N'c'tle-u-Tyne N)


Beckett, Mrs Margaret
Brown, Ron (E'burgh, Leith)


Bell, Stuart
Bruce, Malcolm






Buchan, Norman
Lloyd, Tony (Stretford)


Caborn, Richard
Lofthouse, Geoffrey


Callaghan, Jim (Heyw'd &amp; M)
Loyden, Edward


Campbell-Savours, Dale
McCartney, Hugh


Canavan, Dennis
McDonald, Dr Oonagh


Carlile, Alexander (Montg'y)
McKay, Allen (Penistone)


Carter-Jones, Lewis
McKelvey, William


Cartwright, John
McNamara, Kevin


Clark, Dr David (S Shields)
McTaggart, Robert


Clarke, Thomas
McWilliam, John


Clay, Robert
Madden, Max


Clwyd, Mrs Ann
Marek, Dr John


Cocks, Rt Hon M. (Bristol S.)
Marshall, David (Shettleston)


Cohen, Harry
Martin, Michael


Coleman, Donald
Maxton, John


Cook, Frank (Stockton North)
Meacher, Michael


Cook, Robin F. (Livingston)
Meadowcroft, Michael


Corbett, Robin
Michie, William


Corbyn, Jeremy
Mikardo, Ian


Cowans, Harry
Miller, Dr M. S. (E Kilbride)


Cox, Thomas (Tooting)
Mitchell, Austin (G't Grimsby)


Craigen, J. M.
Morris, Rt Hon J. (Aberavon)


Crowther, Stan
Nellist, David


Cunliffe, Lawrence
Oakes, Rt Hon Gordon


Cunningham, Dr John
O'Brien, William


Dalyell, Tam
Park, George


Davies, Rt Hon Denzil (L'lli)
Patchett, Terry


Davies, Ronald (Caerphilly)
Pavitt, Laurie


Davis, Terry (B'ham, H'ge H'l)
Penhaligon, David


Deakins, Eric
Pike, Peter


Dewar, Donald
Powell, Raymond (Ogmore)


Dixon, Donald
Prescott, John


Dobson, Frank
Radice, Giles


Dormand, Jack
Randall, Stuart


Dubs, Alfred
Redmond, M.


Dunwoody, Hon Mrs G.
Rees, Rt Hon M.(Leeds S)


Eastham, Ken
Richardson, Ms Jo


Evans, John (St. Helens N)
Robertson, George


Ewing, Harry
Robinson, G. (Coventry NW)


Fatchett, Derek
Rogers, Allan


Faulds, Andrew
Rooker, J. W.


Field, Frank (Birkenhead)
Ross, Stephen (Isle of Wight)


Fields, T. (L'pool Broad Gn)
Rowlands, Ted


Fisher, Mark
Sedgemore, Brian


Flannery, Martin
Sheerman, Barry


Foster, Derek
Sheldon, Rt Hon R.


Foulkes, George
Shore, Rt Hon Peter


Fraser, J. (Norwood)
Short, Ms Clare (Ladywood)


Freeson, Rt Hon Reginald
Silkin, Rt Hon J.


Freud, Clement
Skinner, Dennis


George, Bruce
Smith, C.(Isl'ton S &amp; F'bury)


Gilbert, Rt Hon Dr John
Smith, Rt Hon J. (M'kl'ds E)


Godman, Dr Norman
Snape, Peter


Golding, John
Soley, Clive


Hamilton, W. W. (Central Fife)
Spearing, Nigel


Hancock, Mr. Michael
Stott, Roger


Hardy, Peter
Strang, Gavin


Hart, Rt Hon Dame Judith
Thomas, Dr R. (Carmarthen)


Hattersley, Rt Hon Roy
Thompson, J. (Wansbeck)


Hogg, N. (C'nauld &amp; Kilsyth)
Thorne, Stan (Preston)


Holland, Stuart (Vauxhall)
Tinn, James


Home Robertson, John
Torney, Tom


Hoyle, Douglas
Wainwright, R.


Hughes, Dr. Mark (Durham)
Wallace, James


Hughes, Robert (Aberdeen N)
Wardell, Gareth (Gower)


Hughes, Sean (Knowsley S)
Wareing, Robert


John, Brynmor
Welsh, Michael


Johnston, Russell
Williams, Rt Hon A.


Jones, Barry (Alyn &amp; Deeside)
Wilson, Gordon


Kennedy, Charles
Winnick, David


Kinnock, Rt Hon Neil
Woodall, Alec


Kirkwood, Archy
Wrigglesworth, Ian


Lambie, David
Young, David (Bolton SE)


Leighton, Ronald



Lewis, Ron (Carlisle)
Tellers for the Ayes:


Lewis, Terence (Worsley)
Mr. James Hamilton and 


Litherland, Robert
 Mr. Frank Haynes.





NOES


Adley, Robert
Fowler, Rt Hon Norman


Aitken, Jonathan
Fox, Marcus


Alexander, Richard
Franks, Cecil


Alison, Rt Hon Michael
Freeman, Roger


Ancram, Michael
Fry, Peter


Arnold, Tom
Gale, Roger


Atkins, Robert (South Ribble)
Galley, Roy


Atkinson, David (B'm'th E)
Gardiner, George (Reigate)


Baldry, Anthony
Gardner, Sir Edward (Fylde)


Banks, Robert (Harrogate)
Garel-Jones, Tristan


Batiste, Spencer
Glyn, Dr Alan


Beaumont-Dark, Anthony
Goodhart, Sir Philip


Bellingham, Henry
Goodlad, Alastair


Bendall, Vivian
Gorst, John


Benyon, William
Gow, Ian


Best, Keith
Gower, Sir Raymond


Bevan, David Gilroy
Grant, Sir Anthony


Biffen, Rt Hon John
Greenway, Harry


Biggs-Davison, Sir John
Gregory, Conal


Blaker, Rt Hon Sir Peter
Griffiths, E. (B'y St Edm'ds)


Bonsor, Sir Nicholas
Griffiths, Peter (Portsm'th N)


Bottomley, Peter
Grist, Ian


Bottomley, Mrs Virginia
Ground, Patrick


Bowden, A. (Brighton K'to'n)
Hamilton, Hon A. (Epsom)


Bowden, Gerald (Dulwich)
Hamilton, Neil (Tatton)


Boyson, Dr Rhodes
Hanley, Jeremy


Brandon-Bravo, Martin
Hannam,John


Bright, Graham
Hargreaves, Kenneth


Brinton, Tim
Harris, David


Brooke, Hon Peter
Harvey, Robert


Brown, M. (Brigg &amp; Cl'thpes)
Haselhurst, Alan


Browne, John
Havers, Rt Hon Sir Michael


Bruinvels, Peter
Hawkins, C. (High Peak)


Bryan, Sir Paul
Hawkins, Sir Paul (SW N'folk)


Budgen, Nick
Hawksley, Warren


Bulmer, Esmond
Hayes, J.


Burt, Alistair
Hayhoe, Barney


Butcher, John
Hayward, Robert


Butterfill, John
Heathcoat-Amory, David


Carlisle, John (N Luton)
Heddle, John


Carlisle, Kenneth (Lincoln)
Henderson, Barry


Carttiss, Michael
Hickmet, Richard


Cash, William
Hicks, Robert


Chalker, Mrs Lynda
Higgins, Rt Hon Terence L.


Chope, Christopher
Hind, Kenneth


Churchill, W. S.
Hirst, Michael


Clark, Dr Michael (Rochford)
Hogg, Hon Douglas (Gr'th'm)


Clark, Sir W. (Croydon S)
Holland, Sir Philip (Gedling)


Clarke, Rt Hon K. (Rushcliffe)
Holt, Richard


Clegg, Sir Walter
Hooson, Tom


Cockeram, Eric
Hordern, Peter


Conway, Derek
Howard, Michael


Cope, John
Howarth, Alan (Stratf'd-on-A)


Cormack, Patrick
Howarth, Gerald (Cannock)


Corrie, John
Howe, Rt Hon Sir Geoffrey


Couchman, James
Howell, Rt Hon D. (G'ldford)


Cranborne, Viscount
Howell, Ralph (N Norfolk)


Currie, Mrs Edwina
Hubbard-Miles, Peter


Dickens, Geoffrey
Hunt, David (Wirral)


Dicks, Terry
Hunter, Andrew


Dorrell, Stephen
Jackson, Robert


Douglas-Hamilton, Lord J.
Jessel, Toby


Dover, Den
Johnson-Smith, Sir Geoffrey


du Cann, Rt Hon Edward
Jones, Robert (W Herts)


Dunn, Robert
Jopling, Rt Hon Michael


Durant, Tony
Joseph, Rt Hon Sir Keith


Dykes, Hugh
Kellett-Bowman, Mrs Elaine


Emery, Sir Peter
Kershaw, Sir Anthony


Evennett, David
Key, Robert


Fairbairn, Nicholas
King, Roger (B'ham N'field)


Fallon, Michael
King, Rt Hon Tom


Farr, Sir John
Knight, Gregory (Derby N)


Favell, Anthony
Knight, Mrs Jill (Edgbaston)


Fenner, Mrs Peggy
Knowles, Michael


Finsberg, Sir Geoffrey
Knox, David


Fletcher, Alexander
Lamont, Norman


Forman, Nigel
Lang, Ian


Forsyth, Michael (Stirling)
Latham, Michael


Forth, Eric
Lawler, Geoffrey






Lawrence, Ivan
Ridsdale, Sir Julian


Lawson, Rt Hon Nigel
Rifkind, Malcolm


Lee, John (Pendle)
Roberts, Wyn (Conwy)


Leigh, Edward (Gainsbor'gh)
Robinson, Mark (N'port W)


Lennox-Boyd, Hon Mark
Roe, Mrs Marion


Lester, Jim
Rossi, Sir Hugh


Lewis, Sir Kenneth (Stamf'd)
Rost, Peter


Lightbown, David
Rowe, Andrew


Lilley, Peter
Ryder, Richard


Lloyd, Ian (Havant)
Sackville, Hon Thomas


Lloyd, Peter, (Fareham)
Sainsbury, Hon Timothy


Lord, Michael
Sayeed, Jonathan


McCurley, Mrs Anna
Shaw, Giles (Pudsey)


Macfarlane, Neil
Shelton, William (Streatham)


MacGregor, John
Shepherd, Colin (Hereford)


MacKay, Andrew (Berkshire)
Shepherd, Richard (Aldridge)


MacKay, John (Argyll &amp; Bute)
Silvester, Fred


Maclean, David John
Sims, Roger


McNair-Wilson, P. (New F'st)
Skeet, T. H. H.


McQuarrie, Albert
Soames, Hon Nicholas


Madel, David
Speller, Tony


Major, John
Spencer, Derek


Malins, Humfrey
Spicer, Jim (W Dorset)


Malone, Gerald
Spicer, Michael (S Worcs)


Maples, John
Stanbrook, Ivor


Marland, Paul
Stanley, John


Marshall, Michael (Arundel)
Steen, Anthony


Mates, Michael
Stern, Michael


Maude, Hon Francis
Stevens, Lewis (Nuneaton)


Mawhinney, Dr Brian
Stevens, Martin (Fulham)


Maxwell-Hyslop, Robin
Stewart, Allan (Eastwood)


Mayhew, Sir Patrick
Stewart, Andrew (Sherwood)


Merchant, Piers
Stewart, Ian (N Hertf'dshire)


Meyer, Sir Anthony
Stokes, John


Miller, Hal (B'grove)
Stradling Thomas, J.


Mills, Iain (Meriden)
Sumberg, David


Mills, Sir Peter (West Devon)
Tapsell, Peter


Miscampbell, Norman
Taylor, John (Solihull)


Mitchell, David (NW Hants)
Taylor, Teddy (S'end E)


Moate, Roger
Tebbit, Rt Hon Norman


Monro, Sir Hector
Temple-Morris, Peter


Montgomery, Fergus
Terlezki, Stefan


Moore, John
Thatcher, Rt Hon Mrs M.


Morris, M. (N'hampton, S)
Thomas, Rt Hon Peter


Morrison, Hon C. (Devizes)
Thompson, Donald (Calder V)


Morrison, Hon P. (Chester)
Thompson, Patrick (N'ich N)


Moynihan, Hon C.
Thurnham, Peter


Mudd, David
Townend, John (Bridlington)


Murphy, Christopher
Townsend, Cyril D. (B'heath)


Neale, Gerrard
Tracey, Richard


Needham, Richard
Trippier, David


Nelson, Anthony
Twinn, Dr Ian


Newton, Tony
Vaughan, Sir Gerard


Nicholls, Patrick
Viggers, Peter


Norris, Steven
Waddington, David


Onslow, Cranley
Wakeham, Rt Hon John


Oppenheim, Philip
Waldegrave, Hon William


Ottaway, Richard
Walden, George


Page, Richard (Herts SW)
Walker, Bill (T'side N)


Parkinson, Rt Hon Cecil
Wall, Sir Patrick


Parris, Matthew
Waller, Gary


Patten, Christopher (Bath)
Ward, John


Patten, John (Oxford)
Wardle, C. (Bexhill)


Pawsey, James
Watson, John


Pollock, Alexander
Watts, John


Porter, Barry
Wells, Bowen (Hertford)


Powell, William (Corby)
Whitfield, John


Powley, John
Whitney, Raymond


Prentice, Rt Hon Reg
Wiggin, Jerry


Price, Sir David
Winterton, Mrs Ann


Proctor, K. Harvey
Winterton, Nicholas


Pym, Rt Hon Francis
Wolfson, Mark


Raffan, Keith
Wood, Timothy


Rathbone, Tim
Woodcock, Michael


Rees, Rt Hon Peter (Dover)
Yeo, Tim


Renton, Tim



Rhodes James, Robert
Tellers for the Noes:


Rhys Williams, Sir Brandon
Mr. Carol Mather and Mr. Robert Boscawen


Ridley, Rt Hon Nicholas

Question accordingly negatived.

New Clause 7

PARLIAMENTARY CONTROL OF EXTRA-STATUTORY CONCESSIONS

`Extra-statutory concessions granted by the Boards of Inland Revenue and of Customs and Excise shall be subject to approval by a motion containing a list of all such concessions accompanied by an explanatory memorandum laid before the Commons House of Parliament not later than 1st March of each year.'.—[Mr.Terry Davis.]

Brought up, and read the First Time.

12 midnight

Mr. Terry Davis: I beg to move, That the clause be read a Second time.
It should be common ground between both sides of the House that control over taxation has been one of the most important responsibilities and duties of the House over the years, and it should also be a matter of agreement between both sides that the Finance Bill must always receive very close scrutiny.
This year's Finance Bill has spent longer in Committee than any previous one, but that is not the point. Whatever the Government and whatever the Opposition, there has always been close scrutiny of the Finance Bill in Standing Committee, in Committee of the whole House and on Report. Finance Bills probably receive closer scrutiny than any others. That happens every year. There are several taxation measures that need to be reviewed each year. The Finance Bill contains taxes and tax reliefs, and they are examined scrupulously and carefully by the Opposition, whether they be Conservative or Labour.
We have all heard of mysterious concessions that are known as extra-statutory concessions. When prepairing for this debate, I was surprised to find how many are given by the Inland Revenue. We are discussing tax reliefs that are allowed by the Inland Revenue or by Customs and Excise without any authority from Parliament. I can discover no authority for the concessions, either as a group or individually. That stands to reason. Why else would they be called extra-statutory concessions? They are given by the Boards of Inland Revenue and Customs and Excise without any ministerial approval. That should be common ground, as many of the concessions have been given, whichever party has formed the Government or the Opposition.
It is not fair to say that the concessions are kept secret. They are made public, as a list is published albeit infrequently, by the Inland Revenue. It is significant that it is not published by the Government as a White Paper, a Blue Book, a Red Book or some other colour book which is put before the House. The list is published every four or five years and annual supplements are made available to show additions to the list. I remind the House that we are discussing tax concessions made by the Inland Revenue and Customs and Excise. When the list was last published—in 1980—the total was 122 separate extra-statutory concessions on tax. Before the last comprehensive publication, 23 concessions had been added during the previous 12 months. The concessions might be entirely desirable and reasonable and would be approved by the House if they were put before us. That is the point of new clause 7. The Opposition believe that the list should be put before and approved by Parliament.
We are not questioning the propriety of the concessions. We are saying that hon. Members should be able to comment on them and to suggest amendments and additions, just as we go line-by-line through the Finance Bill. The Board of Inland Revenue or the Board of Customs and Excise might discover some quirk or anomaly that has been overlooked by the House and it might be thought right and desirable that that quirk or anomaly should be catered for by an extra-statutory concession. We do not deny that that should happen. We merely say that that concession should be approved by the House some time during the next 12 months. We suggest the beginning of March because that fits in with the Budget statement and the Finance Bill.
Having examined the list that was published in 1980, I believe that there are some concessions that the House would wish to ask questions about. Some of my hon. Friends who have obtained a copy of the list will know that there is one extra-statutory concession that affects policemen and firemen who are forced to retire as a result of being disabled in the course of duty. If they receive a pension as a result of being disabled in the course of duty, that pension is higher then policemen or firemen receive if the retire as a result of ill-health. It is felt that these men —and women—who have been disabled in the course of their duty, should be taxed at a lower rate on the extra pension that they receive.
I am not objecting to the extra-statutory concession, but I am sure that many hon. Members on both sides of the House would want to ask some questions about that extra-statutory concession. Why is it, for example, that such an extra-statutory concession applies only to police officers and firemen? Why should that extra-statutory concession not be given to other people who retire as a result of disablement through an injury that they have received in the course of duty? Why should a police officer or a fireman be treated differently from an ambulance man? Why should a police officer or a fireman be treated differently from a prison officer who is forced to retire as a result of disablement following an injury received in the course of duty in a prison? Why are members of the armed forces who are forced to retire as a result of disablement apparently treated differently from police officers and firemen?
Those are the sort of questions that would be asked in Parliament if we had an opportunity on an annual basis to debate the system of extra-statutory concessions. There may be good answers to those questions. The point of the clause is that hon. Members should have an opportunity to put such questions, and the Minister should have an opportunity to explain why the concessions are given, and why those same concessions are not given to other people who apparently are equally meritorious and deserving because they have been disabled in the course of duty.
Some extra-statutory concessions appear to cover points that have been overlooked by Parliament in the past. I will give one example. In the past, three extra-statutory concessions have applied to life assurance premium relief, which, as we know, is to be abolished. One concession provides that someone shall enjoy life assurance premium relief on an insurance policy that has been taken out in expectation of marriage. That concession appears to cover a point that was overlooked when Parliament was considering the Finance Act 1976. Eight years have

passed, and no Government, Labour or Conservative, considered that it was necessary to legislate on that point in that time. There may be a good explanation for not including that concession and relief in a Finance Bill. Nevertheless, hon. Members should have an opportunity to inquire about it, and to ask the Minister to explain why it has not been included in a clause in a Finance Bill.
Although I would not challenge any of these extra-statutory concessions without giving the Minister an opportunity to explain them, some of them seem to be open to abuse. Some of them could be vehicles for tax avoidance. I do not say that they are, but I want to have the opportunity to cross-examine a Minister in the House, or in Committee, as to why the extra-statutory concessions are being given. I want to have the opportunity to discuss the wording of such a provision. We are at present denied that opportunity.
One example is the concession which provides for mortgage interest relief on marriage. Mortgage interest relief already exists on marriage, but the concession applies to people who buy houses before marriage. This provision means that the interest paid is tax-relieved if two people marry who have bought two separate houses. It is possible to abuse that concession. It is possible for two people intending to be married to purchase two houses, with no intention of living in them both, and then to be able to speculate on the basis of tax relief that would not be given to someone who already has one house and wants to buy a second.

Mr. Maxton: I am following what my hon. Friend is saying carefully. Presumably, as these are extra-statutory arrangements, if the Inland Revenue believes that they are being abused, they can be withdrawn. When someone has been receiving a benefit that the Inland Revenue withdraws, can that person challenge that decision in the courts? Can he say that, as he has had that benefit for five years, it should continue?

Mr. Davis: There is no doubt that the Chief Secretary has heard my hon. Friend's point, and I hope that he will answer it. I suspect that the answer is that there is no possibility of challenging the withdrawal of a concession in a court. It is an extra-statutory concession or an ex gratia concession given by the Inland Revenue or the Customs and Excise. If those departments decide that one does not merit the concession, one will not receive it. If the word means anything at all, it means that it is at their discretion, because it is an extra-statutory concession.
I am not challenging any of these extra-statutory concessions. I am not saying that any of them should be abolished or removed — some of them may be unnecessary—because they provide the cement that fills the gaps in our legislation. However, there cannot be any objection to putting the list before the House of Commons and providing an explanatory memorandum to tell us why these concessions are necessary. Many hon. Members would argue that if the Inland Revenue or the Customs and Excise discover some anomaly in the legislation, that should be corrected in the next Finance Bill or the appropriate legislation. However, the list of concessions should be made available to the House, and should be subject to debate.
It is true also that many individuals benefit from these extra-statutory concessions. Before I looked at the list, I


had the idea that the only people who had such things were miners who had coal or an allowance in lieu. I have heard many references to that by Conservative Members. However, that concession is only one of 40 separate concessions affecting individuals. I have already mentioned some, but there are others. I emphasise that I do not wish to challenge them.
There are concessions dealing with interest-free loans for up to 12 months for people who need to buy a house because they are taking a new job or are moving with their job to a different part of the country. We are all familiar with the practice of an employer giving a loan to an employee to finance a bridging loan to purchase a second house. That concession must add up to a tremendous amount in a year. Even in the present climate of unemployment, there are still people moving about the country in the course of their work and changing their houses, and that must be expensive for the Inland Revenue. I do not oppose that concession, but it should be discussed by the House.
Another extra-statutory concession benefits men—it is usually men—who are tax exiles paying maintenance to an ex-wife—or it may be on ex-husbands—out of income in this country under a court order made in this country. I should want to question that concession to people who are living in tax havens. It may be justified —I do not know—but hon. Members should have the opportunity to question Ministers, through debate.
There are 22 extra-statutory concessions for business men. 12 for companies liable for corporation tax, and another 12 for tax on capital gains. There are—this may not surprise some of my hon. Friends—extra-statutory concessions that apply to CTT and estate duty. One concession struck my imagination. I was surprised to learn of an extra-statutory concession known as El. It means that relief is given as an ex gratia payment by the Board of Inland Revenue for the costs of a funeral as well as for reasonable costs for mourning the deceased person. I am not sure how "reasonable" is defined in the context of mourning.
Having recently organised a funeral, I arranged for the funeral expenses to be paid from the estate—an estate not liable to capital transfer tax. I was amazed to learn that anyone was suggesting that we could deduct from the estate the cost of mourning the person who died. I should have thought that that was my responsibility.
I was even more surprised to learn that the concession allows for the cost of mourning by servants, as well as relatives, to be charged to the estate. I do not know how one would decide the reasonable costs of a butler or a house-maid mourning their dead master. But that is given as an ESC, without the approval of Parliament. It may be quite right, as the hon. Member for Macclesfield (Mr. Winterton) said. I do not have the experience of servants to know whether it is customary for them to look to their employer to meet such costs. However, I know that such tax relief should be given by Parliament, not by the Board of Inland Revenue, Customs and Excise or by any other extra-parliamentary body. The point is that the issue contains an important constitutional principle.

Mr. Ian Mikardo: Has my hon. Friend given any thought to the question of how people would know of these concessions and that they have a right to claim them? Does he not think that someone with a lot of servants probably has good professional advice to tell

him what he can claim, whereas an ordinary bod, in my hon. Friend's constituency or mine, would not claim the concession because he would not know that it existed?

Mr. Davis: I take my hon. Friend's point. To be fair, it is not the fault of the Inland Revenue. It publishes a booklet every four or five years, with annual supplements, in straightforward English, that is easier to understand than much of our legislation. I have obtained a copy. I did not know that a list of concessions existed before. I had not seen one in my constituency. One of my hon. Friends went to buy a copy of the booklet in Her Majesty's Stationery Office but got hold of an out-of-date copy. It is not widely available. Until I began some research for the new clause, I did not know that the list existed. I hasten to add that I do not think that I would benefit from any of the extra-statutory concessions, not being a business man or liable to CTT or capital gains tax. The point is not that the concessions may be wrong — they may be entirely justified — but that they should be given with the authority of the House of Commons.

Sir Raymond Gower: I ask the hon. Gentleman for guidance. Could he say whether the most common and obvious concession is that which permits people coming from abroad to bring certain goods into the country, subject to duty? Is that among the concessions?

Mr. Davis: I do not think that it is. As I said, there are 122 concessions, and I read the list with great interest. It illuminates several nooks and crannies of the nation's social life. I should have remembered the concession mentioned by the hon. Member for Vale of Glamorgan (Sir R. Gower). I have taken advantage of it, as have most hon. Members.

Sir Raymond Gower: The hon. Gentleman has doubtless seen the document supplied by Customs and Excise. The concession is purely an act of grace. Customs and Excise is not bound legally to give it. Therefore., it must be in the same category as the concessions mentioned.

Mr. Davis: I do not remember whether it is in the same category. I do not recall that it was in the list of 122 that I read. No doubt the Chief Secretary can tell us whether it was included in the pamphlet in 1980. It is a Customs matter. Although the list includes concessions given by the Customs and Excise, I do not remember anything applying that to that concession. No doubt the Chief Secretary will tell me whether that is included, although it is not a major point.
Some of the concessions apply to working people. My hon. Friend the Member for Bow and Poplar (Mr. Mikardo) is absolutely right. For example, there is an extra-statutory allowance for tools used by workmen; but I assure my hon. Friend that a business man would find many more such concessions of which he could take advantage.
These concessions should be considered by the House of Commons. There should be better authority for them than the extra-statutory decision of the Board of Inland Revenue or the Board of Customs and Excise. It is not enough for them simply to be approved by a Minister.
I hope that this modest new clause will commend itself to the Chief Secretary and the Government. We are merely


asking for the opportunity for these extra-statutory concessions to be listed and approved by the House of Commons.

Mr. Barron: I wish to support briefly what my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) has said. If these concessions are considered by the House, they may be of benefit to our constituents, although I doubt whether many of my constituents or those of my hon. Friends the Members for Hodge Hill and for Bow and Poplar (Mr. Mikardo) are likely to benefit from many that are listed in the Inland Revenue booklet.
These concessions are remarkable. I shall mention only a few so that hon. Members can get a grasp of the areas into which Parliament could look, perhaps on an annual basis.
My hon. Friend the Member for Hodge Hill was right about the allowance for the cost of tools and special clothing, which at present applies to certain industries. Meal vouchers are also listed. I am sure that many Conservative Members have benefited from those over many years, but many ordinary people from industrial backgrounds have yet to be provided with a meal voucher rather than a shovel.
The list also includes directors' travelling expenses. The general rule on travelling expenses is that the cost to a taxpayer of travelling to and from his place of business is not allowable as a deduction in computing his tax liability. Consequently, the full amount of an allowance paid by a company to a director or senior employee in respect of such expenses is chargeable to tax.
Like me, many hon. Members will have been told by constituents "I am now travelling much further to work and should like to be able to claim some tax relief." The Inland Revenue has said that that cannot be done, but the rule is modified for directors and senior employees.
A director, whether whole or part-time, of two or more companies within a group of parent and subsidiary, or associated companies, whether or not entitled to separate remuneration, can claim tax relief on travelling to and from work. But if he is getting two salaries from two or more companies, he can surely afford to pay for such travel more easily than many millions of ordinary people.
Where the directorship is held as part of a professional practice, travelling expenses incurred by the director can be claimed against tax. It is remarkable that such a provision does not cover many other people who face financial hardship when travelling to and from work, especially given some of the expensive bus services that now operate.
Hon. Members will find that expenses, allowances and benefits in kind are mentioned on page 3.

Mr. Michael Meadowcroft: Has the hon. Gentleman mentioned coal yet?

Mr. Barron: If the hon. Gentleman wants to intervene, instead of speaking from a sedentary position, he can do so. Page 3 states that expenses, allowances and benefits in kind that are received, again, by directors and senior employees are assessable for tax. That is interesting.
The first area covered by chapter 5 consists of
removal expenses borne by the employer where the employee has to change his residence in order to take up a new employment or a … transfer.

I could perhaps understand that, if someone transfers within a company, the employer is likely to bear some of the costs, but it is remarkable that someone who is leaving a company may be able to come to some sort of deal. He may be able to say that, if the employer will pay for his expenses in moving 150 miles—perhaps travelling by bike, as the Secretary of State for Trade and Industry wants so many people to do—the British taxpayer will pay for that.
It is also stated that if a director or senior employee falls ill or suffers injury whilst performing duties abroad, and so has to go into hospital, thus incurring medical expenses abroad, his employer can pay them and claim that against income tax. That is really just paying for private medicine elsewhere, at the expense of the taxpayer. It is remarkable. I should have thought that an insurance company could cover it, and that the British taxpayer would not have to pay for medical fees abroad.
No doubt some hon. Members are aware that under this extra-statutory concession, where a director or senior employee is fit enough to perform his job in this country but is not deemed to be fit enough to go abroad on behalf of his company and so needs his wife to be with him, so that he can perform his duties while abroad on behalf of his employers, tax relief can be claimed. Again, it is remarkable that British taxpayers' money can be used to help people who are fit enough to work in an office here, but who find it much more difficult abroad, and so have to take along their wives. Perhaps we should discuss such concessions in more detail.
The hon. Member for Leeds, West (Mr. Meadowcroft) shouted about miners' coal from a sedentary position, but he did not want to get up to intervene. However, although that one concession applies at present, and comes under chapter 2 of part III of the Finance Act 1976, some mineworkers, because of their earnings, pay income tax for coal received from the National Coal Board. Not all miners get free coal.

Dr. Marek: Extra-statutory concessions are many and varied. I have seen the Inland Revenue booklet. It is readily understood. Most people who are able to peruse information usually have sufficient funds to employ someone to do it for them. The information is not generally available to the ordinary man in the street. Perhaps the booklet should be sent to everyone with their tax return in case it is of use. I have no doubt that anyone who asks for the booklet at a tax office will be given it, but that is not good enough. Information should be offered to the citizen so that use can be made of it if appropriate.
It is not quite right to say that the concessions are made on a grace and favour basis, but they are made by the Inland Revenue or Customs and Excise and can be withdrawn by them for reasons of their own. They do not have to give reasons. Concessions are withdrawn if there is a hint of tax avoidance. That is right.
Parliament is supposed to be supreme, but in practice it is not. The estimates do not always add up, and money disappears. I referred earlier to an article in the Financial Times describing the disappearance of £3 billion of Government expenditure. We know that various sums disappear into various projects connected with national security and Parliament does not know how such sums are used. That is one area where Parliament is not supreme.


If we had a freedom of information Act, at least we would know where the boundaries were. We should know about many things that we do not know about.
I have described only half the problem. Extra-statutory concessions are not generally available, but there is nothing secret about them. Everyone can find out about them, but Parliament cannot comment upon them, vet them or try to change them. Perhaps allowing extra-statutory concessions is the most convenient and best way of tying up the loose ends of revenue collection, but Parliament should be able to comment upon them and decide whether they should be modified.
The new clause seeks a simple change. It does not suggest that we should not operate extra-statutory concessions or make them the subject of an order. All that it suggests is that proposals should be presented to Parliament with an accompanying memorandum. At least then we could have a one-and-a-half hour debate to discuss them and hon. Members' views could be taken on board by the Government.
That is not completely satisfactory, but it is a halfway house. Hon. Members should be entitled to comment. Once legislation is drafted, we are not responsible for the nitty-gritty of government, but we should be able to comment on what the Government are doing.
I should like to know what the Chief Secretary thinks about this. It is reasonable, and I would say that whether the Labour or Conservative party was in government. It is a non-political point. I hope that the Chief Secretary will take the matter on board, and I look forward to his comments.

Mr. Maxton: In common with many right hon. and hon. Members I must declare an interest. Many hon. Members are beneficiaries of an extra-statutory tax concession in the form of a car travel allowance. It is accepted that if an hon. Member lives less than 20 miles from his constituency and his home is outside the constituency, any money claimed as mileage allowance is not chargeable to tax. That is not written into the statute. Therefore, it is an extra-statutory concession. It is not listed, but most hon. Members benefit from it. I openly confess that I do. I live 12 miles outside my constituency and therefore benefit from that tax concession.
The concessions worry me, because the point about tax —it is as true for tax as for law—is that it should be even handed, open, and known to be available to all. However, the point about an extra-statutory concession is that it is available only on application. Even when it is open to application, it may and can be refused, not on the basis of a statute or because the law states reasons why a particular tax inspector will refuse that allowance to that person, but at a whim of a tax inspector, who may decide on a certain occasion that he will not grant the concession.
In a company 20 employees may receive a tax concession which is refused to the 21st employee. If it is an extra-statutory concession, he has no right of appeal because it is not covered by law. He cannot appeal and say, "But 20 people here get the concession. Why should I not get it as well?", but he can say that about any other tax benefit, because he can refer to the statute and the law.
That is a bad system and a bad way of operating. Such loopholes may occur or there may be an obvious case for giving concessions, but in that case the Inland Revenue should grant it. It should report that fact to Ministers and to the Exchequer, the matter should be reported to the

House during proceedings on the following Finance Bill and, if necessary, be incorporated in the next Finance Bill. For six or 11 months a person may receive a non-statutory benefit, but it would not be for longer than that, and it should not be. If, at the end of the day, Parliament says that the concession should not have been granted, we should not say, "You have not been paying the tax, so you must make up for that now", but, "You will pay the tax from now on because Parliament has decided you should."
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There are some extraordinary items on the list, which I have not studied in great detail because, like my hon. Friends, I was unaware of its existence. None of my constituents benefits from those non-statutory tax concessions. There may be some, but they do not write to me or visit me, because they employ qualified tax accountants—

Mr. Tony Banks: They probably vote Tory anyway.

Mr. Maxton: As my hon. Friend says, they probably did not vote for me and would not wish to talk to me about their problems. They employ tax accountants to do the job for them.
Why, on estate duties, should the non-statutory concession be extended on the death of a member of the Royal Ulster Constabulary? Many other people are killed while doing their jobs, including miners, who undertake extremely hazardous work. Why are there no tax concessions on their estate duties? I appreciate that few of them would be paying capital transfer tax anyway. There are some anomalies on the list.
Another category is the income of contemplated religious communities or their members. I do not even know what a contemplated religious community is. Perhaps someone can explain it to me.
An item that one would have thought would be automatically written into law is compensation for the compulsory slaughter of farm animals if they contract diseases, such as foot and mouth. A statutory order insists that the animals are put down, and then compensation is paid according to legislation. But then they get a non-statutory tax concession. It must be possible to insert a clause into a Finance Bill to take care of that. The rest of the procedure—the slaughter and the compensation—is carried out under statute, so why not include the tax concession? It is nonsense to have it on this list, which could mean that a tax collector could refuse to grant the concession.
The Government should be worried about the lack of even-handedness in this matter, because I understood that they were trying to achieve an even-handed approach to taxation. The list gives power to people who are not elected and not responsible to the House to take decisions. A Government official should always ultimately be responsible, through legislation and Ministers, to the House. The list shows that that does not happen in many cases. Therefore, we should do something about it.

Mr. Peter Rees: The hon. Member for Wrexham (Dr. Marek) said that this was not a partisan point. I agree with him, and I take the amendment in that spirit. That is not surprising, because the practice of extra-statutory concessions goes back to before the turn of the century, and most of them—indeed, most of those cited tonight


—antedated the Conservatives' arrival in power in 1979. At precisely what point in our fiscal history they emerged, without notice I could not say.
The basis for them is, however, statutory in that both the Inland Revenue and the Customs and Excise are charged statutorily with the care and administration of their taxes, and from that statutory power their authority for putting forward these extra-statutory concessions is thought to derive.
I cannot speak for previous Administrations. Under the present Administration, and under Conservative rule since 1979, every new statutory concession has been vetted, passed and authorised by a Minister. I appreciate that that does not entirely meet the point that various hon. Members have made, in particular the hon. Member for Birmingham, Hodge Hill (Mr. Davis). It is not true to say that they emerge autonomously, as it were, from a body of civil servants who are not responsible to this House. They are probably put up by the experts in those Departments; few Ministers, if it were not, perhaps, for their postbags, would have knowledge of the circumstances that called for these concessions. However, as I said, under this Administration they have in every case been cleared by a Minister of the Crown. More than that, it is not accurate to say that no Minister of the Crown is responsible for them. Any Minister can be questioned about them by way of oral or written questions, by letter or by being summoned before a Select Committee.

Mr. Allan Rogers: Which would not get any answers.

Mr. Rees: I am not aware that during the time when I answered for these aspects of the Revenue departments the hon. Member for Rhondda (Mr. Rogers) ever wrote to me on any of these points. If he can point to any cases where requests have been put to Ministers and not been answered, I shall have them looked into. It is possible, therefore, for the House to probe these matters, as I said. It is possible for any Back Bencher to probe them in debate; time is readily available for that.
It has been found convenient for 80 or 90 years to deal with matters in this way at what I would call the margin of the tax codes, possibly raising points of only transient interest covering limited numbers of taxpayers. In an ideal world, in strict theory, one should go through and see how far they could be translated into statutory form. Such a perfect solution has evaded all Administrations up to now, for the good reason that, as I say, they are often marginal, obscure points covering a limited number of people possibly for a transient period of time.
Hon. Members will see that the concessions cover a wide range of situations. They are not in favour of any category of our fellow countrymen.

Mr. Mikardo: If they are not angled in favour of any political category, may I ask the right hon. and learned Gentleman to explain why the superannuation contributions of doctors and dentists attract tax relief, but not those of nurses?

Mr. Rees: Nurses belong to the statutory scheme. Doctors and dentists are self-employed. That is the distinction in that case.

Mr. Mikardo: Why should that be the case?

Mr. Rees: We could go through each one, but that is not the point of this debate. I could demonstrate that some benefit certain categories of people for whom Opposition Members may feel a particular concern. If it is said that they are angled in a certain direction, as the vast majority of them have been in force since long before 1979, it would be difficult for Opposition Members to substantiate that charge, and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) might have something to say about the attitude of the last Labour Administration. I am not challenging him; only saying that this is not, I hope, a partisan debate, although certain hon. Gentlemen are trying to turn it into one.
The hon. Member for Hodge Hill was right to direct our attention to these issues, and I appreciate that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) has raised the matter in questions.

Mr. Rogers: rose—

Mr. Rees: I was not aware that the hon. Gentleman had been in the Chamber for the greater part of the debate. This is a serious issue and if the House will allow me to develop it I think that we shall have a more coherent exchange of views. I have conceded from the beginning that it is an important issue which should be treated seriously.
We are dealing with a long-established practice and the question whether it is right is one that we shall have to review from time to time. It is not true that we adopt a hole-in-the-corner approach. The document to which the hon. Member for Hodge Hill referred is available to tax offices free of charge. Similarly, an equivalent document is available to Customs and Excise offices. The chairman of the Board of Inland Revenue and the chairman of the Board of Customs and Excise report any new concessions to the Comptroller and Auditor General every year and the PAC grills, if that is the appropriate word, the chairmen of the two Revenue departments from time to time. The idea that concessions pass without scrutiny is inaccurate.

Mr. Tony Banks: Are the concessions considered regularly with a view to being reviewed? Some of them seem not to make much sense and I should like to know whether they are considered in their totality.

Mr. Rees: There is not a formal process of review in the way that there is a formal public expenditure round in preparation for a Budget, but the concessions are considered. If the hon. Gentleman cares to write to me about any concessions that can be pruned. I shall consider his representations as sympathetically as possible. I agree that it is not desirable that the administration of taxes should be overload with too many concessions. However, it is not right to suggest that they are not exposed to public scrutiny.
I shall be happy to consider whether it is possible to produce an explanatory memorandum. I shall ensure, in so far as it is possible to do so, that it is in coherent, lucid and succinct terms, as I do not want to overburden the House with too much detail. The memorandum will be placed in the Library and if hon. Members on either side of the House feel that the concessions can be more properly and conveniently translated, they can table appropriate new clauses to subsequent Finance Bills.
We have spent a considerable time on the Bill—I am sure that that has been to the profit of the legislation and those who will be subject to it—and I think that it will


be generally agreed that we do not want to overburden the House, but in deference to the powerful case that has been argued by Opposition Members I shall consider whether we can produce an explanatory memorandum.

Mr. Rooker: The new clause was tabled as a result of our debate on clause 11 in Standing Committee, when Ministers could not tell us where a concession was to be found in written form. Following that debate, have the Government found any more concessions that are operating but are not to be found in written form?

Mr. Rees: I must tell the House in all candour that the Government have been fairly occupied in dealing with all the issues that arose when the Bill was considered in Committee and in tabling new clauses and amendments. I cannot say with my hand on my heart that we have been combing through the darker places of the administration of Customs and Excise and Revenue law. However, I give the hon. Gentleman the assurance that we shall carry out an examination of the concessions. If we find any of a substantial kind that can be regarded as important in statutory terms, we shall ensure that they are published so that the House knows exactly what is afoot.
I hope that Opposition Members will feel that this has been a useful debate as a first step. It does not prejudge whether we can take the matter further. We shall put an explanatory memorandum—

Mr. Maxton: The Minister has referred to the book which contains all the relevant information. How many copies of the book were printed last year and how many were taken up? Has he any idea whom they went to?

Mr. Rees: I cannot answer those questions without notice. I have noted the hon. Gentleman's questions and I shall write to him. It has been suggested that the book should be sent to every taxpayer. On reflection, the hon. Gentleman will realise that that is an expensive process.

Mr. Dennis Canavan: Answer the question.

Mr. Rees: If the hon. Gentleman will contain himself, I shall answer the question. I shall endeavour in my letter to the hon. Member for Glasgow, Cathcart (Mr. Maxton) to include a rough estimate of the cost.
I hope that the hon. Member for Hodge Hill, who has initiated an important and interesting debate, will feel that justice has been done to his points and that he can leave the matter there.

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Mr. Terry Davis: I do not cavil at the way in which the Chief Secretary has replied to the debate. He has conceded that the Opposition are making a partisan and important point. I shall comment on one example that was given about the extra-statutory concessions — the superannuation contributions of doctors and dentists. I take the right hon. and learned Gentleman's point about nurses being covered by a statutory scheme for superannuation and doctors and dentists being regarded as self-employed. A self-employed pharmacist or optician might argue that his superannuation contribution should also have the benefit of an extra-statutory concession.
I direct the Chief Secretary's attention to the extra-statutory concession known as A33. That interesting concession applied to life assurance premium relief before it was abolished by the Government. Under the Finance Act 1976, it was possible

for life assurance premium relief to continue after divorce in respect of premiums paid by one party on the life of the other if they were married when the policy was taken out but were divorced … By concession this post-divorce treatment is extended to premiums on policies taken out in anticipation of the marriage.
That is a case in which Parliament legislated to say that there shall be tax relief on the life assurance premiums paid by one spouse on the life of another if the policy was taken out during the marriage.
The Board of Inland Revenue—presumably, with the authorisation or approval of the Minister—decided that that measure should be extended to policies taken out before a marriage. There is a difference. If that was considered right by the previous Labour Government or the present Conservative Government, it is reasonable to have included the measure in a Finance Bill. That has not been done.
The Chief Secretary told us that there was no secret about the list. I made that point in my opening remarks. I must correct the right hon. and learned Gentleman on one point and tell him something that has not been drawn to his attention. He referred to his willingness to put in the Library an explanatory memorandum about each of these extra-statutory concessions. It might interest the right hon. and learned Gentleman to know that the Library did not have such a list when asked for one earlier today. The Library had to send to Somerset house to obtain a document that was published four years ago. The Library did not even have that principal document, let alone the documents that have been issued since, at the rate of one a year. I am not complaining about the Library; I say only that the document has not been made as publicly available, even to Members of Parliament, as it should have been.
The Chief Secretary has given me cause for concern, because he has implied that there may be evidence that some extra-statutory concessions have not been included in the Green Book which was published in 1980, or in the annual supplements which have been issued since. On 10 May 1984, in Standing Committee A, the Chief Secretary was unable to give us an assurance that all extra-statutory concessions had been made publicly available. I refer the right hon. and learned Gentleman to his own remarks:
I emphasise that the Commissioners of Customs and Excise are not under any obligation to publish an extra-statutory concession." — [Official Report, Standing Committee A, 10 May 1984; c. 238.]
What other extra-statutory concessions exist that are not known to the public or, more importantly, to Members of Parliament? It is reasonable to say to the right hon. and learned Gentleman that we believe that once a year a complete list—the Minister should assure us that it is a complete list—should be put before the House for its approval.
When pressed, the Chief Secretary said that the authority for the extra-statutory concessions lies in the authority for the administration of taxes, which is given in an Act of Parliament. It is stretching it to some extent for the Chief Secretary to suggest that the authority to administer taxes should be extended to include an authority to give tax relief. That goes beyond what Parliament previously understoood in legislation.
I accept entirely the Chief Secretary's point that the extra-statutory concessions existed before the Conservative Government came to office. I accept that many of them have existed for many years, but that does not alter the point. They should be put before the House


of Commons. This is a murky corner, which should be illuminated. We ask only for information. I accept that most, if not all, of the concessions are justifiable and desirable. Our point is the constitutional one that the list should be provided for the House of Commons to approve once a year.
I am very disappointed that the Chief Secretary has not simply accepted this modest new clause. Let me remind him that the Government were elected on a manifesto that included the statement:
We stand firm for the supremacy of Parliament".
This is one small point on which Parliament is not supreme at present. The Opposition will therefore press the new clause to a Division.

Question put, That the clause be read a Second time:—

The House divided: Ayes 99, Noes 273.

Division No. 403]
[1.10 am


AYES


Ashdown, Paddy
Lewis, Ron (Carlisle)


Ashton, Joe
Lewis, Terence (Worsley)


Atkinson, N. (Tottenham)
Litherland, Robert


Banks, Tony (Newham NW)
Lloyd, Tony (Stretford)


Barron, Kevin
Lofthouse, Geoffrey


Beckett, Mrs Margaret
Loyden, Edward


Beith, A. J.
McDonald, Dr Oonagh


Bell, Stuart
McTaggart, Robert


Bennett, A. (Dent'n &amp; Red'sh)
McWilliam, John


Bermingham, Gerald
Madden, Max


Blair, Anthony
Marek, Dr John


Bray, Dr Jeremy
Maxton, John


Brown, Gordon (D'f'mline E)
Meadowcroft, Michael


Brown, N. (N'c'tle-u-Tyne E)
Mikardo, Ian


Bruce, Malcolm
Mitchell, Austin (G't Grimsby)


Campbell-Savours, Dale
Nellist, David


Canavan, Dennis
O'Brien, William


Carlile, Alexander (Montg'y)
O'Neill, Martin


Clay, Robert
Park, George


Cocks, Rt Hon M. (Bristol S.)
Penhaligon, David


Cohen, Harry
Pike, Peter


Cook, Frank (Stockton North)
Powell, Raymond (Ogmore)


Cook, Robin F. (Livingston)
Randall, Stuart


Corbett, Robin
Richardson, Ms Jo


Corbyn, Jeremy
Robertson, George


Cowans, Harry
Rogers, Allan


Cox, Thomas (Tooting)
Rooker, J. W.


Craigen, J. M.
Ross, Stephen (Isle of Wight)


Cunliffe, Lawrence
Rowlands, Ted


Dalyell, Tam
Sedgemore, Brian


Davies, Rt Hon Denzil (L'lli)
Sheerman, Barry


Davies, Ronald (Caerphilly)
Short, Ms Clare (Ladywood)


Davis, Terry (B'ham, H'ge H'l)
Skinner, Dennis


Deakins, Eric
Smith, C.(Isl'ton S &amp; F'bury)


Dormand, Jack
Smith, Rt Hon J. (M'kl'ds E)


Evans, John (St. Helens N)
Spearing, Nigel


Ewing, Harry
Strang, Gavin


Fields, T. (L'pool Broad Gn)
Straw, Jack


Fisher, Mark
Thomas, Dr R. (Carmarthen)


Foulkes, George
Thompson, J. (Wansbeck)


Golding, John
Wainwright, R.


Hamilton, James (M'well N)
Wallace, James


Hardy, Peter
Wardell, Gareth (Gower)


Hattersley, Rt Hon Roy
Welsh, Michael


Haynes, Frank
Woodall, Alec


Hogg, N. (C'nauld &amp; Kilsyth)
Wrigglesworth, Ian


Holland, Stuart (Vauxhall)
Young, David (Bolton SE)


Home Robertson, John



Hughes, Sean (Knowsley S)
Tellers for the Ayes:


Johnston, Russell
Mr. Allen McKay and Mr. Don Dixon.


Kennedy, Charles



Kirkwood, Archy






NOES


Aitken, Jonathan
Gardiner, George (Reigate)


Alexander, Richard
Goodhart, Sir Philip


Alison, Rt Hon Michael
Goodlad, Alastair


Ancram, Michael
Gorst, John


Arnold, Tom
Gow, Ian


Ashby, David
Gower, Sir Raymond


Atkinson, David (B'm'th E)
Grant, Sir Anthony


Baker, Nicholas (N Dorset)
Greenway, Harry


Baldry, Anthony
Gregory, Conal


Banks, Robert (Harrogate)
Griffiths, E. (B'y St Edm'ds)


Batiste, Spencer
Griffiths, Peter (Portsm'th N)


Beaumont-Dark, Anthony
Grist, Ian


Bellingham, Henry
Ground, Patrick


Bendall, Vivian
Gummer, John Selwyn


Benyon, William
Hamilton, Hon A. (Epsom)


Best, Keith
Hamilton, Neil (Tatton)


Bevan, David Gilroy
Hanley, Jeremy


Biffen, Rt Hon John
Hannam, John


Biggs-Davison, Sir John
Hargreaves, Kenneth


Blaker, Rt Hon Sir Peter
Harris, David


Bonsor, Sir Nicholas
Harvey, Robert


Boscawen, Hon Robert
Hawksley, Warren


Bottomley, Peter
Hayes, J.


Bottomley, Mrs Virginia
Hayhoe, Barney


Bowden, A. (Brighton K'to'n)
Hayward, Robert


Bowden, Gerald (Dulwich)
Heathcoat-Amory, David


Brandon-Bravo, Martin
Heddle, John


Bright, Graham
Henderson, Barry


Brinton, Tim
Hickmet, Richard


Brittan, Rt Hon Leon
Hind, Kenneth


Brooke, Hon Peter
Hirst, Michael


Brown, M. (Brigg &amp; Cl'thpes)
Hogg, Hon Douglas (Gr'th'm)


Browne, John
Holland, Sir Philip (Gedling)


Bruinvels, Peter
Holt, Richard


Buck, Sir Antony
Hooson, Tom


Budgen, Nick
Howard, Michael


Burt, Alistair
Howarth, Alan (Stratf'd-on-A)


Butterfill, John
Howarth, Gerald (Cannock)


Carlisle, John (N Luton)
Howell, Ralph (N Norfolk)


Carlisle, Kenneth (Lincoln)
Hubbard-Miles, Peter


Carttiss, Michael
Hunter, Andrew


Cash, William
Jessel, Toby


Chalker, Mrs Lynda
Johnson-Smith, Sir Geoffrey


Chope, Christopher
Jones, Robert (W Herts)


Churchill, W. S.
Jopling, Rt Hon Michael


Clark, Dr Michael (Rochford)
Kellett-Bowman, Mrs Elaine


Clark, Sir W. (Croydon S)
Key, Robert


Clarke, Rt Hon K. (Rushcliffe)
King, Roger (B'ham N'field)


Cockeram, Eric
King, Rt Hon Tom


Colvin, Michael
Knight, Gregory (Derby N)


Conway, Derek
Knight, Mrs Jill (Edgbaston)


Cope, John
Knowles, Michael


Cormack, Patrick
Lang, Ian


Couchman, James
Latham, Michael


Currie, Mrs Edwina
Lawler, Geoffrey


Dickens, Geoffrey
Lawrence, Ivan


Dicks, Terry
Leigh, Edward (Gainsbor'gh)


Dorrell, Stephen
Lennox-Boyd, Hon Mark


Douglas-Hamilton, Lord J.
Lester, Jim


Dover, Den
Lightbown, David


du Cann, Rt Hon Edward
Lilley, Peter


Dunn, Robert
Lloyd, Peter, (Fareham)


Emery, Sir Peter
Lord, Michael


Evennett, David
McCurley, Mrs Anna


Fairbaim, Nicholas
Macfarlane, Neil


Fallon, Michael
MacGregor, John


Favell, Anthony
MacKay, Andrew (Berkshire)


Fenner, Mrs Peggy
Maclean, David John


Fletcher, Alexander
Major, John


Forman, Nigel
Malins, Humfrey


Forsyth, Michael (Stirling)
Malone, Gerald


Forth, Eric
Maples, John


Fowler, Rt Hon Norman
Marland, Paul


Fox, Marcus
Marshall, Michael (Arundel)


Franks, Cecil
Mates, Michael


Freeman, Roger
Mather, Carol


Fry, Peter
Maude, Hon Francis


Gale, Roger
Mawhinney, Dr Brian


Galley, Roy
Maxwell-Hyslop, Robin






Mayhew, Sir Patrick
Sims, Roger


Merchant, Piers
Skeet, T. H. H.


Meyer, Sir Anthony
Soames, Hon Nicholas


Miller, Hal (B'grove)
Speller, Tony


Mills, Iain (Meriden)
Spencer, Derek


Mills, Sir Peter (West Devon)
Spicer, Jim (W Dorset)


Miscampbell, Norman
Spicer, Michael (S Worcs)


Mitchell, David (NW Hants)
Stanbrook, Ivor


Moate, Roger
Stanley, John


Monro, Sir Hector
Steen, Anthony


Montgomery, Fergus
Stern, Michael


Moore, John
Stevens, Lewis (Nuneaton)


Morris, M. (N'hampton, S)
Stevens, Martin (Fulham)


Morrison, Hon C. (Devizes)
Stewart, Allan (Eastwood)


Morrison, Hon P. (Chester)
Stewart, Andrew (Sherwood)


Moynihan, Hon C.
Stewart, Ian (N Hertf'dshire)


Mudd, David
Stokes, John


Murphy, Christopher
Stradling Thomas, J.


Neale, Gerrard
Taylor, John (Solihull)


Needham, Richard
Taylor, Teddy (S'end E)


Nelson, Anthony
Tebbit, Rt Hon Norman


Neubert, Michael
Temple-Morris, Peter


Newton, Tony
Terlezki, Stefan


Nicholls, Patrick
Thomas, Rt Hon Peter


Norris, Steven
Thompson, Donald (Calder V)


Onslow, Cranley
Thompson, Patrick (N'ich N)


Oppenheim, Philip
Thurnham, Peter


Ottaway, Richard
Townend, John (Bridlington)


Page, Richard (Herts SW)
Townsend, Cyril D. (B'heath)


Parkinson, Rt Hon Cecil
Tracey, Richard


Parris, Matthew
Trippier, David


Patten, John (Oxford)
Twinn, Dr Ian


Pawsey, James
Viggers, Peter


Porter, Barry
Waddington, David


Powell, William (Corby)
Wakeham, Rt Hon John


Powley, John
Waldegrave, Hon William


Proctor, K. Harvey
Walden, George


Raffan, Keith
Walker, Bill (T'side N)


Rathbone, Tim
Wall, Sir Patrick


Rees, Rt Hon Peter (Dover)
Waller, Gary


Renton, Tim
Ward, John


Rhodes James, Robert
Wardle, C. (Bexhill)


Rhys Williams, Sir Brandon
Watson, John


Ridley, Rt Hon Nicholas
Watts, John


Ridsdale, Sir Julian
Wells, Bowen (Hertford)


Roberts, Wyn (Conwy)
Wheeler, John


Robinson, Mark (N'port W)
Whitfield, John


Roe, Mrs Marion
Wiggin, Jerry


Rossi, Sir Hugh
Winterton, Mrs Ann


Rowe, Andrew
Winterton, Nicholas


Rumbold, Mrs Angela
Wolfson, Mark


Ryder, Richard
Wood, Timothy


Sackville, Hon Thomas
Woodcock, Michael


Sainsbury, Hon Timothy
Yeo, Tim


Sayeed, Jonathan
Young, Sir George (Acton)


Shaw, Giles (Pudsey)



Shelton, William (Streatham)
Tellers for the Noes:


Shepherd, Colin (Hereford)
Mr. David Hunt and Mr. Tristan Garel-Jones.


Shepherd, Richard (Aldridge)



Silvester, Fred

Question accordingly negatived.

New Clause 12

TAX AVOIDANCE AND EVASION

'Within twelve months of the passing of this Act there shall be laid before this House a report by the Board of Inland Revenue on the scale and nature of tax avoidance and evasion.'.—[Mr. Hattersley.]

Brought up, and read the First time.

Mr. Hattersley: I beg to move, That the clause be read a Second time.
In new clause 12 we are trying to encourage the Government to set out, after investigation, the scale, extent and nature of what is popularly and, these days,

loosely called the black economy. I hope that, when he replies, the Minister of State will make clear his, and therefore the Government's, views on the black economy. He will recall that, during Treasury Question Time in December, he urged us to regard the black economy as not all bad. He said that there were many merits to that part of our national life. I hope that he makes it clear today that that was the occasional slip that we all make and that he did not intend to suggest that the behaviour of people who avoid or evade proper tax payments is in any way condoned by the Government, as seemed to be the case during that Question Time.
When we talk of the black economy, we talk of two groups of people. The first are those who avoid their legal obligation to pay taxes. That can be done in a variety of ways. They might have employment that is not declared for tax or they might be employed but, by a series of additions to their payments, do not pay tax on the full range of their emoluments. The second do not act strictly illegally, but they do not act within the spirit and intention of Finance Bills. I refer to tax avoidance which is practised by men and women who do not get sent to prison but nevertheless intentionally avoid the purpose of a tax when it was introduced by the House. They are the people who discover the loopholes and exceptions and make fortunes for themselves and others by evading and avoiding the intentions of the House.
We are by no means certain of the extent of the revenue that is lost to the Government and the nation through the operations of both sides of the black economy. A former chairman of the Board of Inland Revenue has calculated that 7·5 per cent. of gross domestic product is lost. The Central Statistical Office has rather more recently suggested 3·5 per cent. of gross domestic product. Either way, an enormous amount of potential Government spending power is lost.
Conservative Members sometimes make speeches about poor families and individuals who are overpaid a few pounds in national insurance receipts or unemployment benefit or in the discretionary payments that they receive as old-age pensioners, and refer to them as people who dodge and improperly receive the benefits of the welfare state. What is lost by the improper receipt of welfare payments pales into insignificance when compared to what is lost through tax avoidance and evasion.
I regret that the Chief Secretary is not to reply to the debate as, when we last discussed these matters, he talked of Government handouts. He referred to what other people call national insurance and social security payments. I should have enjoyed his confirmation that the handouts of which he spoke so dismissively do not, through their improper payment at the margins, lose to the revenue the type of sums that are lost through the black economy. These sums may, by some calculations that I have heard, amount to £11 billion a year or, even if the lower estimate is right, may amount to £3 billion a year. That is most of our total education bill. It is an increase in every taxpayer's personal allowance of 30 per cent., and a cut in basic tax rates of 6p in the pound. All those things would be possible were we collecting the funds that ought to be collected according to the will of Parliament. All we ask is that Government make an assessment of the extent of the problem, and report to the House how extensive a problem it is. We believe that, were the extent of the loss to be


clearly understood, the Government would set about correcting the loss with a great deal more determination than they do at present.
I want to make a few brief comments about how the loss could be corrected and the sums that the Revenue should receive be collected. I concede at once that in parts of the black economy the problems of discovering the illegalities and the problems of collecting those sums which should come to the Revenue are difficult. They are difficult when they apply to small men who, when they return home from their normal pay-as-you-earn employment, may do some freelance job of building, gardening, or motor car maintenance and repair. It is enormously difficult to catch them and require them to pay the money that they should be paying to the Exchequer. However, there is also the area, not of illegal evasion, but of legal avoidance where huge companies spend their public time publicly preventing the Exchequer from receiving enormous sums of money. Were their activities registered by the Government, I believe that the pressure to take action against them would be irresistable.
I give only one example that comes from a document prepared by the staff side of the Inland Revenue departmental Whitley council, men and women whose job is to collect taxes, and who often feel that their job is made more difficult by the Government's actions in allowing so much leakage and so much escape. I quote from one paragraph, which says:
In a Financial Times article on 9 October 1979 Mr. Roy Tucker and Mr. Ronald Plummer estimated that between 1972 and 1978 their vehicle, the Rossminster group of companies, made£5million clear profit out of avoidance activity alone.
The idea that there may be a quoted company in this country that exists in order to advise people how to avoid the tax obligations which are placed on them by this Parliament seems to me to be not only a disgrace but nonsense in terms of the way in which the economy ought to be run. The then Chief Secretary, now Lord Barnett, commenting on this problem, said in the House at the time that the Tucker and Plummer revelations were made that he suspected that the general activity in the avoidance field was costing the Revenue something like £200 million a year in lost tax revenue. He went on to say that legal avoidance involved widespread and sophisticated activities employing some of the best brains in the country. We shall all have our own views about that, but we shall no doubt want to acknowledge that there is a widespread practice, accepted in some parts of society, that vast fees can be obtained for advising other individuals how they may find the loopholes in our taxation system:
I have no doubt that some weak-minded Conservative Members will announce that there is no legal obligation on companies or individuals so to arrange their tax systems that they pay the maximum amount possible. We all accept that, of course. But I think that many hon. Members will argue that there is a moral obligation on individuals not to go out of their way to discover the technical loopholes in legislation in order that they may receive substantial sums which finance Bills and Parliament never intended. If there are hon. Members who doubt that—I see that there are, sitting below the Gangway, smiling in their cynically superior way at the thought that people might have moral obligations to pay their taxes—that is the point that I am making. As they will avoid paying tax if they possibly

can, it becomes the duty of the House to make sure that they pay tax. I hope that as a first step towards that, the Minister will agree that at least the House can be told the extent of the problem, and that an annual review can be carried out by the Board of the Inland Revenue.

Mr. Peter Bottomley: I had intended to speak before the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) threw his insult across the Floor of the House. I think that he was probably trying to make sure that Conservative Members were still awake.
It is most important to try to keep a fairly up-to-date idea of how wide the tax base is. The major cause of substantial efforts at tax avoidance is the high rate of tax. If we want to see the black economy diminish without economic activity diminishing, and efforts at avoidance reduced, one of the things we have to do is make sure that the marginal rates of tax are reduced, because then the marginal returns of sophisticated tax avoidance systems would be reduced. The only way to reduce marginal rates on a wide scale is by having a broader tax base for personal incomes—about which I know more than I do about corporation profits and reduction of tax—and by making further efforts to reduce expenditures over time. This new clause, if it is passed would not necessarily have that effect.
I should prefer to see one of the Select Committees putting a good deal of effort, not just in one year, but in successive years, into looking at the tax base. About half of personal income is subject to tax, and when one has allowed for personal tax allowance, mortgage interest relief and all the other things, we are left with the narrow personal tax base. I suspect that the same thing applies to corporate tax.
On corporation tax, knowing in advance that the mainstream rate of corporation tax will come down in a predictable way, will get many of these bright brains looking for bright ways to increase profits rather than reducing them. We need to do that.
On personal taxation, I have said on a number of occasions that we have got a time bomb with mortgage interest relief. In the next two or three generations, people will inherit the value of homes from parents and grandparents, and there will be distortion as more and more people put more and more disposable wealth into their home. Owner-occupation is a marvellous thing to encourage, but in the next 40 years there will be a predictable narrowing of the personal tax base, which makes the reason for such interest relief less and less obvious. The House should examine this matter.
I noted that my right hon. Friend the Prime Minister recently said that the mortgage interest relief system will continue as it is. I am all for keeping some form of mortgage interest relief, but is should be concentrated on the town and country planning formation, and not kept in the present system for too long, because it encourages people to increase their mortgage to get the higher tax relief year after year.
The new clause is worth discussing, but it is better for a Select Comittee to go looking at the tax table, and investigate tax avoidance and evasion, rather than relying on one short paragraph issued by the Government once a year.

Mr. George Foulkes: This year, I have been suffering from withdrawal


symptoms through not having my regular fix as a member of the Committee on the Finance Bill. Over those long evenings, well into the morning, my hon. Friends and I had the pleasure of debating with Tory Members who were regulars on the Committee. I well remember the Chief Secretary to the Treasury, the right hon. and learned Member for Dover (Mr. Rees), sitting there night after night in his shirt sleeves and braces. I remember his constant refrain, which became a sort of parrot cry—my hon. Friend the Member for Workington (Mr. Campbell-Savours) recalls it, as he sat with us. The Chief Secretary repeated the phrase, "We need the money". My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) is putting it elegantly to music.
The Chief Secretary constantly said, "We need the money". We were discussing all sort of amazing ways to raise tax. I remember a long and interesting discussion on raising more tax through an increased levy on chewing tobacco.
My hon. Friends are putting forward a way to ensure that the Government get some of the money that is due to them. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) has spoken about the problem of the black economy. It was noticeable that Conservative Members almost excused and explained away tax evasion, which after all is breaking the law. That, coming from the supposed party of law and order is disgraceful. It is a lot for us to take.
We see in operation a very different attitude towards a poor widow who may have just a few pence too much from the DHSS, through an error that may not even be hers. She is hounded for the extra money that is paid to her. I suggest that much more money is available from tax dodgers, evaders and avoiders than we shall ever get back from the poor widow who had a little too much by mistake from the DHSS.
I fully support the main thrust of what my right hon. Friend said, but I should like to raise an item that I used to raise in the Finance Bill discussions, and which I shall continue to raise so long as I am in the House. Perhaps the Government or, after the next election, our Government, will do something about tax evasion, and the deliberate avoidance of responsibilities and duties by those people and companies who set themselves up in or flit away to, the offshore islands, such as Jersey, Guernsey and the Isle of Man.
I visited Guernsey recently at the island's invitation, and was given quite a warm reception. No eggs were thrown at me on that occasion. One of the questions that the friendly people of Guernsey asked me—the people of Jersey were not quite so friendly—was why I was so interested in the matter, and continued to hound them. They asked, "Why do you have this bee in your bonnet? What does it have to do with you?" The important answer to the question, which is of interest to my constituents in Carrick, Cumnock and Doon Valley is that they are paying more taxes or getting poorer services because those people, who are far more able to pay tax are going away and dodging their responsibilities. They, including some Conservative Members and their friends are deliberately setting up companies on those islands to avoid paying tax. That is why the question is important to my constituents.
I should like to deal with two categories, individuals and companies. The individuals are particularly brass-necked. I was not able to hear a recent Radio 4 broadcast, but I got a transcript of it, courtesy of the BBC.
It was about Mr. Alan Whicker, the TV performer. He gets a lot of money from the BBC, but all of us, including my constituents, pay the licence fees which go towards paying for Alan Whicker.
Alan Whicker has moved to Jersey to avoid paying his due share of tax, yet he had the cheek to appear on a Radio 4 programme and attack me for attacking him. What is more, he got paid a fee for doing so. But he will not pay a full rate of tax on that fee, whereas if I were to appear on the BBC to reply to that accusation, I would have to pay my full share of tax.
Alan Whicker's gall was bad enough, but this also applies to people such as Jack Higgins, the thriller writer, whose books people such as my hon. Friend the Member for Cathcart buy. They contribute money to Jack Higgins, yet he slips off to Jersey to avoid paying tax.
Even a member of the Government had a home on the Isle of Man. At the time he was a member of the Cabinet, and there was much controversy because the editor of the Isle of Man newspaper dared to criticise Lord Cockfield and was sacked for doing so. It transpired that a member of the Cabinet had his hideaway house in this tax haven on the Isle of Man. These are the ones we know of. How many more people enjoy these tax-dodging opportunities?
Although companies do not attract such spectacular publicity, they are far more serious and worrying. Thousands of companies are established on these offshore islands every year — more than 1,000 registered in Jersey—deliberately to avoid paying their full share of tax. These companies operate and make their profits in the United Kingdom, but register subsidiary or parent companies on these islands deliberately to siphon off profits. As a result, profits in the United Kingdom are minimised and profits in the tax havens are maximised.
Laker was one such company. When that company crashed and the workers tried to use United Kingdom laws to protect their interests, they discovered that as they were employed a company registered in one of these offshore islands they did not enjoy the protection of United Kingdom employment legislation. These are often sham companies. They are established with island nominee directors. Indeed, some company lawyers are directors of dozens, if not hundreds, of companies. When I was there, there was a newspaper article by one of their own advisers warning them that they had to take seriously their responsibility as directors. They were warned no longer to attend just one meeting, usually in a hotel ldunge where they all sat around having a drink. That was the official meeting, and the company record showed that to be the appropriate annual meeting. Therefore, in many cases these are not real, operating companies.
I am sure that my right hon. Friend the Member for Sparkbrook wants this included in the report to be produced within 12 months under new clause 12. It is particularly galling—I said this when I was there—to have these islands so close to the United Kingdom and enjoying many of the benefits as if they were part of the United Kingdom. I am sure that some hon. Members, and certainly many of the public, think that those islands are part of the United Kingdom. They certainly get many of the benefits. The people get British passports. If they need sophisticated medical treatment, they come over and get it on the National Health Service. It is usually our prison service that looks after their serious criminals.
1.45 am
The Channel Islands and the Isle of Man still have the death sentence. Although in practice the Home Secretary always commutes the death sentence, it is ironic that if someone was to be executed, it would have to be carried out here, in the United Kingdom. Those on the islands also have all the advantages of access to United Kingdom television and radio, to all the institutions, and to insurance cover. They have the same banking facilities. The same banks operate there, although they operate differently. The inhabitants can join the Automobile Association, or, if they are posh, the Royal Automobile Club. All the institutions are the same. I could go on, but I can see that hon. Members do not want me to.

Mr. Home Robertson: Is my hon. Friend aware that the Government are now talking about giving the vote in British general elections to those who have gone abroad to avoid taxes? That was announced a couple of weeks ago.

Mr. Foulkes: That is an interesting point. When I was over there, I suggested that integration into the United Kingdom should be considered, which might mean having the vote and one or two constituencies. No doubt they would be Conservative constituencies, so that shows how generous I am in suggesting such integration. However, that would be a logical move.
Those islands have many of the advantages that go with being part of the United Kingdom. They are within easy reach of it. Businessmen who live in the Channel Islands may well have businesses in London as well. As the islands are so close, they can fly to and fro, fulfil the residential qualifications and carry on their business here as well. That is why the islands are so popular.
When I was in the Channel Islands, one of the criticisms that I heard was that if we got rid of all the companies and money, they would go to other tax havens such as the Cayman Islands. But we should also be doing something about those islands, because they are a United Kingdom dependency. If those companies moved, they would face an entirely different sort of operation. Most of the individuals or companies that register in the Channel Islands or the Isle of Man do so because of the convenience of being so close to the United Kingdom. To all intents and purposes, those people are living in the United Kingdom.
When I was in the Channel Islands I constantly said that those who lived in such places had all the advantages that residents in the United Kingdom have, but none of the burdens. I am glad to say — and it is one little step forward that the Government have taken — that the Home Secretary has at last invited Guernsey and Jersey to consider contributing towards the cost of defence and foreign representation. I suggested that, although I do not say that the invitation has anything to do with me. I am the last person to whom the Government would pay attention—[HON. MEMBERS: "Hear, hear.] That point seems to find favour with Conservative Members. But irrespective of who suggested that, the logic and sense of it have come through. Perhaps even the Treasury has realised that there is an opportunity to get some more money. Perhaps even the Chief Secretary has realised that if Britain obtains a substantial contribution from Guernsey and Jersey towards defence and foreign representation, that will reduce the burden on our taxpayers. That is a step forward, but it has caused consternation, flurry and disquiet in the Channel Islands. The Government have

done the right thing. The Home Secretary has taken the initiative. I hope that the Chancellor will take a similar initiative.
We do not ask for much in the new clause. We do not even ask the Government to take immediate action. We do not ask for action in this fiscal year. We ask only for a report on the scale and nature of tax avoidance so that we know how much money we are losing and how much we might put in the coffers if we did something about the problem.
I shall continue to pursue the issue. I hope that my Front Bench will do the same. I have used the phrase "parasite islands" on several occasions. That is what they are. They live off the fat of the United Kingdom. It is about time that they stopped living off that fat. They can keep their tax base so low because we cover most of their costs. The people who are most able to pay tax flit there, and the burden on those least able to pay increases. It is about time that some action was taken. I hope that the Government will take one little step forward.

Mr. Campbell-Savours: My hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) has been consistent on this subject over the years. Since I was elected I have heard him object repeatedly to the arrangements on the Isle of Man. He asked the people involved what would happen if we removed the concession and prevented them from taking advantage of offshore tax havens. They said that they would move elsewhere. In the coming years they might instead, patriate their tax arrangements to the United Kingdom because the Government's objective is to create within the United Kingdom a tax regime that would attract such companies and people back so that they can take advantage of concessions here at home.
One can go to the Library and pick out a copy of Exchange and Mart, turn to the section of commercial affairs and see a series of advertisements placed by tax consultant and tax management companies based in the Isle of Man and other similar tax havens in western Europe.
I arranged for a constituent to write to two such companies to find out what they had on offer. In the advertisement they referred to being in a "low tax area" where no corporation, capital gains or capital transfer taxes were paid. one advertisement said:
no need to worry. Send £1·00 for confidential advice and comprehensive guide.
We wrote to CLW Management Services Limited of Hope street, Douglas, Isle of Man, which is, incidentally, only 30 miles away from my constituency. That tax haven is just off the west Cumberland coast. In the reply thanking me for our valued inquiry regarding company formation in the Isle of Man, the director enclosed a comprehensive brochure that gave details of the many advantages of being the beneficial owner of a Manx-registered company and an application form, on which we could list the preferred names of companies we wished to form.
The letter stated:
As you already know, tax avoidance is legal but also somewhat complex. If you would care to telephone the undersigned"—
that is, Mr. Jones—
I will be pleased to enlighten you in any particular field. Ideally, if you could make a visit to the Island I would be pleased to meet you at the Airport and can then discuss your personal requirements.


Our service is a professional one backed by the facilities and advice of Accountants and Bankers. Our other services include Telex, Photocopying and Secretariat.
The company sought to lay out a prospectus to attract us to the Isle of Man to register a company with a view to avoiding tax in the United Kingdom.

Mr. Maxton: How many companies?

Mr. Campbell-Savours: The exercise was thoroughly academic because I thought that the House would be interested to hear about such companies.
We also wrote to SGS Consultants Ltd. of St. George's street, Douglas, Isle of Man. The company thanked us for our inquiry and offered to supply us with nominee directors and shareholders. In his letter, a consultant said:
Whilst company formation is a fairly straight forward exercise, we would appreciate your reasons for such a company, so that we can arrange the correct situation for you. Please be assured, that all information is treated with the utmost confidentiality.
The tax saving in using an offshore company is quite considerable if used intelligently, especially in the following categories:
Non-residents of the United Kingdom.
Fee earning individuals such as entertainers—sportsmen—consultants.
Individuals or companies engaged in business not necessarily confined to one particular country.
Import and/or export companies.
Individuals or companies who are in receipt of royalties, commissions, copyright payments.
People are being sought out and sold the idea of avoiding paying taxes which should be paid to a British Government. That does not serve the greater British interest. Every effort should be made to terminate such activities, because they act against our social responsibilities.
Those matters must be taken in conjunction with other forms of tax evasion, of which we are all aware. It is not possible in London—I have repeatedly raised this point —or anywhere else in the United Kingdom to hire a tradesman without his asking in the course of a conversation whether one intends to pay in cash or by cheque and whether one needs an invoice. All hon. Members know that that goes on.

Mr. Patrick Cormack: That is not true.

Mr. Campbell-Savours: The hon. Gentleman must live in a rarefied world. Whenever I hire a tradesman, I am asked that question. It happens to hon. Members even within their constituencies, and we all know it. Such is the cheek of people that they even ask us, knowing that we are legislators, have wider responsibilities and are in the public eye, whether we wish to take advantage of lower prices arising from their offers not to pay tax.

Mr. Cormack: The hon. Gentleman should not make such a general smear. He knows that many people work in a perfectly honourable and proper way.

Mr. Campbell-Savours: I agree that many people work in a perfectly honourable and reasonable way, but many more are now cheating the system. As VAT in the building industry increases, it will have a spin-off effect and will create an incentive not only to avoid paying VAT but to arrange their personal taxation affairs so that they need not pay the Inland Revenue.

Mr. Cormack: indicated dissent.

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Mr. Campbell-Savours: The hon. Gentleman may shake his head, but we all know what is happening. Even if one telephones a tradesman in London he will ask "Are you paying cash or do you want an account?" That is the measure of the problem, and until it is resolved and it is no longer possible for people to do that, the black economy is likely to become even larger.
Those matters have been drawn to the attention of the House repeatedly, and about two years ago a committee was set up under Lord Keith of Kinkel to consider the Inland Revenue's ability to enforce compliance with tax laws. In 1981 the Inland Revenue suggested, on a broad view of the black economy that the annual tax loss could be about £4 billion. Understatement of business profits and failure to notify casual and agency earnings were but two elements of this. Other major elements were receivers of income not yet on the Inland. Revenue records, which were referred to as ghosts, and taxpayers who understated their incomes or did not declare their secondary incomes, generally known as moonlighters. The Inland Revenue believes that all those categories cost the Exchequer £4 billion a year, but other commentators believe that the tax loss is substantially greater, and one organisation estimated it to be as much as £11 billion a year.

Dr. Marek: Does my hon. Friend know whether the report has been debated in the House? If not, would it be a good idea if the Government found time within the next 12 months to debate measures that could recover a substantial amount of money—possibly even £4 billion —for the Inland Revenue?

Mr. Campbell-Savours: My hon. Friend is asking me to comment on what should be a decision by the Leader of the House. However, we have an indicator of what his view would be: not once in the past five years have I heard a Conservative Member challenge Government policy on the collection of taxes in terms of the black economy. I have heard no questions on the matter, and I have sat through many debates on the tax loss caused by the black economy without hearing one speech from a Conservative Member on this matter. If that is the measure of their interest, it is unlikely that we could put meaningful pressure on the Government to allow time for such a debate.

Mr. Tony Banks: Is my hon. Friend aware that, while we hear a lot from Conservative Members about so-called social security scroungers and the need for DHSS inspectors to hunt them down, the Government have reduced the number of Inland Revenue inspectors—when, by increasing the number, they might have obtained for the nation some of the £4 billion which is being lost by tax avoidance?

Mr. Campbell-Savours: My hon. Friend is right. Indeed, various PAC reports show that the loss to the Inland Revenue from tax avoidance is far more substantial than assessments of the loss to the DHSS, yet the latter is always raised by Conservative Members.
The Keith committee was appointed in July 1980 against a background of widespread concern about the black economy and, among the business community, about the enforcement powers conferred on the Revenue departments by the 1972 and 1976 Finance Acts. The first two volumes of its report covered taxes on personal


incomes, capital gains, corporation profits and VAT. They dealt with the powers necessary to enforce tax law under the four headings of the identification of the taxpayer, controlling the known taxpayer, criminal and other investigations and tax offences generally.
Those reports included 158 recommendations, of which 130 would involve fresh legislation. Those recommendations are now before the Government. Will the Minister say whether the Government intend to implement the Keith recommendations? If he ducks dealing with Keith, it will be clear that the Government are not interested in dealing with the matter.
A number of my hon. Friends, including my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton), and I are members of the Committee of Public Accounts. On several occasions we have had before the Committee the accounting officers of the Inland Revenue, giving evidence on manpower, value for money and the various areas which we must examine as members of that committee. The PAC's concern has been about the work forced on the Department because business taxpayers render their returns late. We were informed that inspectors must make estimated assessments to enable the Department to charge interest from the date when the tax was due to be paid. The Department has power operable through commissioners of the High Court, to impose penalties for late rendering, but the time limit is rarely enforced because the workload must be spread and there are not the resources to do otherwise.
We have with us tonight, to answer the debate, the Minister responsible for the Civil Service. He should take this opportunity to comment on the concern that the PAC has expressed about deficiencies in this area of taxation.
The Revenue has resisted the PAC's proposals to set statutory payment dates with interest accruing on any tax that is unpaid by those dates. The Keith committee considers the present arrangements to have "virtually broken down". It recommends statutory dates for rendering returns and accounts, with possible tax-geared penalties for late rendering. The PAC has asked the Department to have new powers to make random in-depth examinations of business taxpayers' accounts. A substantial power is being sought and it should be remembered that the PAC is an all-party committee. However, in the knowledge of the level of abuse that is taking place, it has asked that such powers be made available to the Revenue. This would mean that taxpayers would no longer be entirely protected by accounts that are constructed carefully to avoid challengeable inconsistencies. It would enable the Revenue to monitor systematically the general trend in compliance.
The Keith committee recommended that trading taxpayers be statutorily required to keep records and that the Department should be empowered to enter premises to check the records of schedule D taxpayers. Given the evidence of the size of the black economy, is there not now clear and adequate justification for these powers to be given to the Inland Revenue to deal with these special problems?
The PAC confirmed in 1981 that casual and agency workers' tax evasion was costing the Revenue about £140 million a year. That led it to suggest that casual workers should be required to identify themselves with national insurance numbers or suffer tax deduction at the standard

rate on their earnings. It recommended that early legislation be introduced to counter agency workers' tax avoidance.
In their characteristic approach, and without explaining why they thought that the proposals were impracticable, the Government decided to rely on tighter administration. When accounting officers were brought before the PAC they suggested to it in coded language, knowing that Ministers would be reviewing the comments in their evidence, that they were concerned about the manpower cuts that were being imposed on the Civil Service. The Keith committee recommended that one half of the basic tax rate should be deducted from payments to agency-work companies and casual workers who are not VAT-registered traders or on PAYE.
The PAC's recommendations for tackling the £4 billion in the black economy to which I alluded earlier included strengthening departmental powers for investigation, heavier penalties for non-compliance and a comprehensive review of the problem to identify suitable areas for a concerted attack by the Government, especially the Inland Revenue.
I regret, as do many of my hon. Friends who are members of the PAC—I am sure that all those who are present will express their regret in this debate—that the Inland Revenue has no power to make random sample checks. It needs that power to deal with an ever-escalating problem.
The Keith committee recommendations included an obligation, backed by tax-geared penalties, to notify each separate source of income in a return to be submitted at least every third year and improved powers to require a taxpayer or third party to produce documents and answer questions in writing. All those recommendations came from a committee that assessed in depth the nature and scale of the problem.
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When I consider the recommendations of those committees, I am more able to understand what happens during the deliberations of Select Committees. One of the interesting aspects of Select Committee work is that often the party political division breaks down. The Employment Select Committee is well known for its objective reports which clearly show that political divisions have broken down and that people have looked rationally and objectively at legislative arrangements or deficiencies in the law and made recommendations irrespective of the partisan nature of their political positions. That is a sign of the need for in-depth investigations. Only in those conditions will people drop their political labels.
The Keith committee was not a Select Committee. It was a committee of inquiry. We must presume that it carried people of all political persuasions, who wanted to examine the problem and to come up with sensible and reasonable recommendations — as the Keith committee did. Those recommendations suggested that substantial powers need to be given to the Inland Revenue to deal with the problems confronting it.
The Keith committee recommended publication of the names of fraudulent taxpayers and exemplary prosecutions to reflect the prevailing climate of offences. That is an important recommendation, because we all know what would happen if Inland Revenue—

Mr. Bob Clay: There would be a few by-elections.

Mr. Campbell-Savours: My hon. Friend said that there would be a few by-elections, and that may be so. Until the recommendations are implemented, there is little possibility of those by-elections taking place. We all know what would happen if the names of people acting fraudulently by not paying their taxes were published—there would be a great rush to the Inland Revenue and much squaring up. People would not want their images dented by the fact that they were in trouble with Inland Revenue.
The recommendation on publication will have a dramatic effect on the tax take of Inland .Revenue. Furthermore, it will have a dramatic effect on the tax take of Customs and Excise, because many companies trading in this country by custom or practice have managed in one way and another to avoid paying customs and excise duties and the necessary VAT payments. If they were placed in the position whereby, if prosecuted that information would be made public in a very open way and if there were more frequent prosecutions and less behind-the-door arrangements of "If you pay, we will let you off," many more companies would be eager to pay those VAT payments.
This debate is most important, and I congratulate my hon. Friends on the Opposition Front Bench for once again tabling a new clause which deals with an area of national concern, which the Government have repeatedly failed to address during the past five years. The Government must come to terms with the problem. As my hon. Friend the Member for Carrick, Cumnock and Doon Valley said, two years ago the then Financial Secretary repeatedly referred in Committee to the fact that he needed the money. If we needed the money then, we need it more desperately today.
Yesterday, a statement was made on the youth service. During it the Government sent out the usual signals that they could not afford to pay over the necessary funds to secure adequate funding arrangments for the youth service. We could have a national youth service that was unprecedented in this country and better than anything else on earth if we were only willing to go out and gather that 1 per cent. of the tax loss that currently accrues to the Inland Revenue.
Urgent action is needed. I look to the Minister to address himself to the comments made by my hon. Friends.

Mr. Barron: I should like to speak in favour of new clause 12. I hope to convince hon. Members on both sides of the House that they, too, should vote for it.
The case for a report on tax avoidance and evasion within 12 months was well put by my hon. Friend the Member for Workington (Mr. Campbell-Savours). I share many of his ideas about the need to stop altogether the avoidance and evasion of tax, although I have not read the Select Committee report that he quoted eloquently.
However, I should like to quote from a book by Kay and King, called "British Tax System", which I understand is renowned and respected. I have the third edition, printed in 1983. It describes tax avoidance in Britain. On page 38, it states:
Poor people who engage in the black economy are illegally evading tax.
That is true. My hon. Friend the Member for Workington mentioned casual labour. There is casual labour in my constituency, particularly in agriculture. People who work

seasonally have to pay the full scale of income tax, on payas-you-earn, if they do not have a national insurance number. I am not against that. Anyone who has paid tax for any length of time, especially in seasonal, casual work, is likely, at the end of the year, to be able to claim back all the income tax that he has paid in that employment. I am sure that many hon. Members will agree about that. However, it does not always work like that.
Some people in my constituency who live in the Sheffield postal area come under a regional office based in Sheffield, which was set up by the Government to examine the black economy. Those people are treated differently from the others whom I mentioned, although they have similar or the same employment. When we look at the black economy and try to make sure that people are not avoiding income tax, and when we set up offices such as the ones that the Government have set up over the past few years, we should make sure that everyone is treated in the same way. I am told that due to cuts in the Civil Service the Sheffield service will not be extended. That means that there is unfair discrimination and the Government should stop it. I believe that anyone who is working and should be paying tax ought to pay it.
Kay and King continue:
Richer people diminish their tax liabilities by legal lax avoidance. Like the black economy, tax avoidance has come under increasing scrutiny. The mechanisms by which Lord Vestey, the 'master butcher' and one of Britain's richest men, has avoided paying any significant amounts of tax over an extended period have been given much publicity. So too have the activities of Roy Tucker and his Rossminster Group, who were leaders in the construction of elaborate avoidance schemes in which a convoluted series of artificial transactions were devised with no ultimate consequence other than the creation of a tax deduction for the customer, a profit to the inventor of the schemes, and a loss to other taxpayers.
I am pleased to say that the Rossminster group has now been stopped, partly as a result of a decision by the other place, preventing people from claiming for non-existent transactions, and the premises have been taken over by representatives of the Inland Revenue who are still investigating some aspects of the matter.
The scale of that kind of tax avoidance seems rather larger. TheDaily Mirror of 4 December 1980 carried a very interesting article. I shall not comment on the headline or on the last 75 per cent. of the article as the first 25 per cent. gives a clear enough idea of the scale of avoidance in which groups such as Rossminster have been involved. It states:
For nearly 18 months the Inland Revenue has been investigating the biggest tax-dodging scheme in history, run by the Rossminster group of companies.
At least £100 million in lost taxes is involved. According to Granada's World in Action programme, it could be as much as £1,000 million—equal to more than a penny on the rate of income tax for the rest of us.
The Treasury Minister in charge of the Inland Revenue is Mr. Peter Rees, QC.
[HON. MEMBERS: "Who is he?"] He is now Chief Secretary to the Treasury, but he is not here at the moment. The article continues:
Before Mr. Rees joined Mrs. Thatcher's Government he was a tax adviser to the Rossminster group.
It is incredible that the Inland Revenue and the other place should have had to take action to curb that group's activities while one of its tax advisers holds ministerial office at the Treasury, but perhaps one converted Christian is worth more than a bunch of conscripts, as it were.

Mr. Brian Sedgemore: The Sunday Mirror of 7 December 1980 referred to the Chief Secretary as follows:
Nurse Margaret can, if she has the will, get rid of these ugly warts.
But it will need more than a swipe with a wet flannel to make the face of Toryism more acceptable.
What does my hon. Friend make of that?

Mr. Barron: Not being a member of the medical profession, I am not sure, but my hon. Friend's quotation may well merit further consideration.
I should like to quote what was said by the present Chief Secretary to the Treasury at a conference held at the Café Royal in London in December 1979. It could best be described as a tax avoidance conference.

Mr. Campbell-Savours: Casino Royale.

Mr. Barron: Paragraph 4 of the right hon. and learned Gentleman's speech is headed "A Fair Basis". The right hon. and learned Gentleman said:
The government accepts that it is fairer to tax people on the same basis whether they are paid exclusively in cash or in a combination of cash and benefits.
I put it to the House, in view of new clause 7 and my hon. Friend's comments about new clause 12, that the time is now right for us to treat all people equally. I am certain that they are not all treated equally at present. If new clause 12 was accepted we might, within 12 months, be able to put income tax on a fairer basis for the vast majority of our people and put an end to the great disparities in the ways in which people are treated at present.

Mr. Maxton: I should like to add a few words to what has been said by some of my hon. Friends, particularly my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes). More than any other hon. Member here, my hon. Friend has made a comprehensive study of the way in which the Channel Islands and the Isle of Man are used for tax avoidance. I use the phrase "tax avoidance" deliberately. It is not evasion; it is avoidance. It takes place in areas which most of us consider to be part of the United Kingdom. I accept that, legally, they are not part of the United Kingdom, although some of our laws cover the Channel Islands and the Isle of Man as well as the rest of the country, and some of our Acts expressly make that point.

Mr. Foulkes: Is my hon. Friend aware that the Prime Minister has told me that ultimately, if it wished to do so, this Parliament could legislate for the Channel Islands and the Isle of Man in all matters? It is only by convention that, over the years, we have decided not to do so on matters of internal government. If the actions of the Channel Islands and the Isle of Man become so outrageous as to offend us, we should consider exercising our paramount power.

Mr. Maxton: I believe that that would indeed be the case. At present, the Channel Islands and the Isle of Man are treated in many respects as part of the United Kingdom, but in matters of taxation and company law they are not. That halfway house is unacceptable. Either those places should be part of the United Kingdom or—like the Cayman Islands and other tax havens—they should be almost totally independent. They should issue their own passports, and people should be required to show those

passports when they enter or leave this country. That would ensure that there was proper control over the islands as tax havens. There is no such control at present.
My hon. Friend the Member for Carrick, Cumnock and Doone Valley mentioned the fact that people living in the Channel Islands and the Isle of Man have to have residential qualifications. If they spend more than a certain length of time in this country they are supposed ta pay United Kingdom tax. However, there is no real check on the length of time for which they stay here. Unlike people coming here from the other tax havens, they are not subject to passport control. A British citizen using another tax haven has a passport, which is stamped when he enters or leaves this country. With the Channel Islands and the Isle of Man, that is not the case.
It is therefore possible for these people to spend much time in Britain and to act almost as full United Kingdom citizens while getting the tax benefits of the Channel Islands. That is simply not acceptable. Nor is the fact that they gain considerable benefits. Perhaps the Minister will tell us whether, when Channel Islands citizens come to Britain for major operations that they cannot get at home, they pay the same rate as overseas visitors. I suspect that, like us, they get treatment free. The same is true for students. Most people in the Channel Islands who want a university education come to the United Kingdom. They do not pay overseas student rates for fees. That should not be allowed.
It is time that the Government examined what happens in the Channel Islands and the Isle of Man. Either people there should be taxable as are other United Kingdom citizens or they should be made independent so that we can deal with them differently.
Nothing divides the parties more than taxation—how money is raised and how it is spent. There is no better example of that than the way in which recipients of unemployment, sickness and other social security benefits are treated and regarded and the way in which people who are suspected of tax evasion are regarded. I recently came across the case of an unemployed youth whose father runs a small furniture delivery business. He was seen by a neighbour unloading his father's van. He assures me that he did so voluntarily, and he has now been able to prove that to the DHSS. On the word of one neighbour and on the evidence of only one occasion, he found that when he went to get his benefit he was told not that the DHSS had evidence of his being paid and that he should prove the contrary but that his benefit had ceased. It took four weeks before he even got a letter telling him about it. When I wrote to the DHSS I was told that it is under no obligation to give any written explanation why benefit is stopped. I eventually managed to get the case cleared up. The lad's benefit payments were restored and back benefit was paid.
The DHSS has arbitrary powers to deal with people who are merely suspected of fraud. If someone is suspected of income tax evasion, however he is invited to the income tax office and invited to explain to the inspector why a given entry was made on a tax return. Such meetings can go on for months, during which time the person still pays no tax. In nine cases out of 10, the Inland Revenue will say, "Let us work this one out amicably. We believe that you have evaded tax of X amount. If you pay us Y, we shall forget all about it."
The man will go away and sell a couple of Rolls-Royces, and the matter will be forgotten and finished. He may have broken the law and they may even be able to


prove that he has broken the law, the people in the Inland Revenue may know that he has broken the law, but usually they will not prosecute, providing that he is prepared to pay up at least a certain amount of the sum in question.
The difference of treatment of tax avoidance and tax evasion is incredible. This matter divides the Opposition and the Government. In our view, tax should be paid by the people who are better off to ensure that the poorest in society are properly protected and looked after. Taxation ensures that services are provided for the community at large and for the poorest and weakest in society. We believe that there is an obligation on people to pay tax. Conservative Members on the other hand take the view that, if they can get out of the burden of taxation and ensure that their friends do not pay tax, so much the better. Conservative Members ask how they can get out of paying tax and not how to ensure that they pay the correct amount as their obligation to society.
At one time, we were told by Conservative Members that people went off to the Channel Islands and to the Isle of Man and employed tax accountants because the rate of taxation was too high. We were told that people went off to these havens because of the nasty Labour Government that imposed high rates of taxation. However, after five years of a Tory Government, there is no great number of people coming back from the Channel Islands, the Isle of Man or other tax havens because they believe that Baritain's rates of taxation are worth coming back for. This is despite the fact that the Government have slashed the levels of higher rate taxes.The number of tax accountants offering services to ensure that people pay less tax as a result lof the Government's action has not lessened.
The better-off in society feel no patriotic obligation to pay taxes even for the defence of the of the country. The Conservative Members who refer to trade unions as unpatriotic because they go on strike should turn their attention to those people who do not pay taxes and thus do not fund services through taxation. It is they who are the truly unpatriotic people and not those in society who do the work and pay taxes to ensure that the services and defence of our country are properly provided.

Dr. Marek: I am grateful to my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) for his last comment. I am sure that there is a great deal of truth in what he said.
The Tory party, which has been in power for the last five years, has done two things. It has increased the level of taxes that people pay if they have worked for the money that they receive, but it had decreased taxes the level of taxes of those who have money for which they have not worked. That is the difference between Conservative policy and Socialist policy.
In an earlier debate, I referred to today's Financial Times. Another article caught my eye this morning which is particularly appropriate because it talks about the concessions of tax havens in the Finance Bill. The first two paragraphs of the article demonstrate that we have no hope of having the new clause accepted in the Bill. I would not be so uncharitable as to suggest that no Conservative Member believes that there should be a tight and anti-avoidance system, because I am sure that some Conservative Members do not like tax avoidance and tax evasion. Indeed, I am certain that some Ministers on the Government Front Bench do not like tax avoidance and tax

evasion. Equally, other Ministers and, indeed, some senior Ministers, would do anything rather than accept tight anti-avoidance legislation.
The article says:
Major concessions in the Finance Bill provisions aimed at preventing abuse of tax havens by UK companies and residents were announced last night.
It was one of the plus points of the Bill that it had, certainly through the control of foreign companies, some anti-tax avoidance legislation. We welcomed this, and although we thought that many things in the Finance Bill were bad, such as that it shifts the burden of taxation from the rich to the poor yet again—as the Tory party has been doing for the past five years we felt that there were at least two or three parts containing useful anti-tax avoidance legislation.
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The article continues:
The concessions followed intensive lobbying in the past two months by the Confederation of British Industry, and other employer organisations, bankers accountants and lawyers.
The Bill's provision would tax companies controlled by UK residents in low-tax overseas countries unless they qualified for at least one of several exemptions.
It adds that concessions were tabled as amendments yesterday.
It would be improper for me to discuss those amendments now, as we shall be discussing them later.
However, we should pay close attention to the principles involved in those concessions because of the new clause. We want the Treasury to make an estimate and analysis—I know that it will not be perfect—of how much tax avoidance and evasion go on. We would have had some confidence that the Government would do this if they had had a mind to accept the new clause. However, we have seen them succumb to pressure such as that exerted in the past few days, which has led to major concessions in the Bill, and concessions in what we have been discussing—tax havens.
This shows the sheer humbug of the position taken by those Conservative Members who believe that we should have no tax evasion, and that there should be as little tax avoidance as possible. They should vote with us on this new clause, and against the Government when we vote on the later amendments. That is the only correct and moral thing to do, but I doubt whether Tory Members will join us in the Lobby. That is immoral. Despite all that we have said, and our genuine concern that money that should properly belong to the Inland Revenue is being frittered away, or stays in the Cayman Islands, the Channel Islands or the Isle of Man, more concessions are being granted.
I do not have to remind hon. Members that at least one Minister always talks about the money that the Government have belonging to the British taxpayer, and about how the money that they have the duty to collect because of legislation should all be collected. It should not be collected only from a certain section of the population —that which does not have too much money—while a section of the population that has so much money that it does not know what to do with it can leave it in the Cayman Islands.
I hope that sometimes Conservative Members will examine their consciences to see what they are doing. They are wrecking the country. They have no interest in the country. Their own friends and acolytes come first, and they will bend to any immoral principle to serve them, and their masters' greed.

Mr. Ian Wrigglesworth: From time to time, the sort of information that is called for in the new clause is published. It has always made very interesting and useful reading. It should be published regularly on the basis laid down in the new clause.
I entirely accept the Opposition's arguments for the moral basis of taxation and against tax avoidance and evasion, and the obligation that has been clearly laid down for citizens to pay their taxes openly, honestly and willingly, and to accept their responsibilities within the community.
I should like to add two further arguments to the debate. The hon. Member for Glasgow, Cathcart (Mr. Maxton) raised the issue of incentives, and the disincentive effect of taxation that we heard so much about before the 1979 election. Like the hon. Member for Cathcart, I am surprised that we have not had a flood of entrepreneurs returning to the country. I am thinking of the return of the really high earners and of the great entrepreneurial upsurge that would result from the lower taxes introduced by the Government. We have seen neither that return, nor the great growth in British industry as a result of the more zealous activities of highly paid management through lower taxes. That was the case before 1979, but there is no evidence that that argument about the disincentive impact of high taxation holds water. Several studies have been carried out, but they have all failed to show that result.
There is no evidence, either, that low levels of taxation cause people to avoid paying taxes. If one goes to Hong Kong where the tax level is 15 per cent.—I know that the hon. Member for Falkirk, West (Mr. Canavan) has done so several times — there is just as much organisation of tax avoidance there as there is when people seek to avoid paying tax at the much higher levels in this country. No matter what the level of taxation, some people will try to avoid or evade it. It is the Government's responsibility to prevent that.
That brings me to my second point. The Government have substantially cut the number of civil servants, and made that much more difficult the Inland Revenue's job of rooting out tax exasion and avoidance. At the same time, there has been no lack of enthusiasm about employing more investigators in the DHSS to look for those who are, so they say, claiming benefits to which they are not entitled. When there is the political will to act against people who misuse the social security system, more civil servants can be employed to do that. When the opposite is the case, the number of civil servants is cut. The work by tax inspectors and their staff to stop avoidance and evasion has been interrupted and undermined because there are insufficient staff to do that job. The Inland Revenue Staff Federation has pointed that out many times.
The new clause is modest, and tries to help those in favour of stopping avoidance and evasion to find more information to enable them to put pressure on the Government to stop those practices. I hope that the House will support the new clause, and take a modest step in the right direction on this issue.

Mr. Canavan: I rise in support of the new clause. It is a modest measure and I hope that the Government will support it. I am not very sure in my own mind about the difference in definition between tax avoidance and tax evasion. I understand that one of them is illegal and that

both of them are immoral. In any case, we should be trying to make both of them illegal because we want to take more into the public purse to be able to redistribute wealth in favour of those who are most in need.
If a report based on the new clause were presented to the House showing the amount of tax evasion and avoidance, and the methods used, the House of Commons would be better educated to take steps to eliminate both practices.
I especially wish to refer to a particular form of tax avoidance or evasion which is despicable. That is the abuse of charitable tax legislation, whereby bogus charities under the guise of certain Tory Members are using existing legislation to obtain tax rebates.
One example is the Adam Smith Institute — Adam Smith would probably turn in his grave if he knew that that institute was named after him—which is now headed by people such as the hon. Member for Stirling (Mr. Forsyth). Where is he tonight? He is probably in his bed. Unfortunately, the hon. Gentleman is my Member of Parliament. When I first came to the House I was my own Member of Parliament. I had the privilege or otherwise of representing myself in this House for the best part of 10 years, but because of the local government and parliamentary boundary commissions' review, for the first time in my life I am now misrepresented by a Tory Member who is up to his neck in this tax avoidance, evasion or whatever it is called. He is heading the Adam Smith institute, which is undoubtedly one of the organisations putting across capitalist propaganda on behalf of the Tory party. But at the same time, those who claim to believe in the free market economy, free market forces and non-intervention are clamouring to the Treasury behind the scenes for tax relief and back-handers. That shows how dishonest they are, and underlines the need for the new clause.
The Adam Smith Institute is just typical of many such organisations. Last week my hon. Friend the Member for Bolsover (Mr. Skinner) read out a list of Tory Members who are up to the necks in the interest shown in the privatisation of the NHS. Many of them also have connections with organisations that are hell-bent on propagandising the philosophical and political themes of privatisation, yet at the same time claim that they should get tax rebates. Through the Adam Smith Institute and the other organisations to which they belong they seek the advantage of tax relief, avoidance or evasion—it is all a matter of terminology. They are robbing the ordinary people who are good and honest taxpayers.
The rich are able to use legal advisers. I understand that an hon. Member who is now a Minister—he was at the Dispatch Box not long ago — has all his life been dedicated to advising people on how to rob the Treasury in order to line their own pockets. Now he is a Minister. That is a disgrace. Therefore, I say to fair-minded Conservative Members—if there are any left—that if they do not want to be accused of lining their pockets they should support the proposition that there should be a report to the House on tax avoidance and/or tax evasion and that we should take appropriate steps to eliminate it.

3 am

Mr. Tony Banks: The new clause clearly gives the Government a chance to prove their sincerity about tax evasion. The Minister has not been markedly supported by speeches from Conservative Members on the Benches


behind him, but I hope that he will at least say something to make Opposition Members feel that the Government are genuine in wanting to limit and, indeed, eradicate tax evasion.
As my hon. Friend the Member for Workington (Mr. Campbell-Savours) said, there is obviously a considerable amount of money in the black economy. According to the Inland Revenue, we are talking about approximately £12,000 million. Thus the sum of money involved is considerable and the prize is great. But the Government seem to have made no real attempt to control the black economy, so their sincerity when speaking against it must be very much in doubt.
There are considerable and obvious benefits to controlling it. An estimated £4,000 million could be garnered in by the Revenue if it was given the resources to approach the black economy in the way that we should like to see. Thus, there are obvious and enormous benefits. We have had many debates on local government overspending. We were told by Ministers—I assume in all seriousness—that the overspend last year of about £771 million somehow undermined the Government's economic strategy. Obviously, many Opposition Members would say that the Government do not have one, but I shall let that pass for the moment. If that £771 million undermined their economic strategy, hon. Members can just imagine what the Government could do if they seriously set out to try to claw back that £4,000 million that they are clearly not gaining in tax receipts. Therefore, the Government clearly have much to gain.
Opposition Members have spoken about the difference in the Government's attitude towards those who are allegedly fiddling their social security and about all the effort that is being made to try to do something about so-called social security fiddling. However, the number of those not claiming social security benefits to which they are fully entitled is much higher than the number of those fiddling them. They Government could, again, show their sincerity by spending far more on advertising, so that those who are entitled to social security benefits go and get them. But we do not see or hear anything about that.
Therefore, one is forced to the conclusion that far from being critical of the black economy, the Government want to encourage it. From a capitalist point of view, there are many reasons for that.

Mr. Gareth Wardell: Does my hon. Friend agree that the advice of social security advisers at DHSS offices might also assist people to claim what is rightfully theirs?

Mr. Banks: Yes, I accept that. There is much that could be done to point out people's rights. Large sums of money go unclaimed because people do not know what they are fully entitled to.
Earlier we heard about all the concessions available from the Inland Revenue. Most would go to professional people, not to working class people on PAYE. Much more could be done to explain entitlements instead of complaining in newspapers about social security scroungers.
Anyone who knocks on doors when canvassing, particularly in Labour constituences, hears little about tax evasion but much about social security scroungers.
The weight of the Tory party propaganda machine is geared to whipping up that type of hysteria. We should

publicise more the money which the Government are losing through the black economy. That would result in a change in public attitudes.
I do not believe that the Government want to do anything about the black economy. From a capitalist view, I can see why they wish to encourage it. They look at France and Italy and believe that their economic advances spring from support for the black economy being the national sport.

Mr. Bell: Does my hon. Friend agree that the Government do not want to disturb the black economy because money comes back into the system and is recovered in VAT?

Mr. Banks: If there is a strategy behind he Government's tax arrangements it is to have a black economy of major proportions and to impose taxes on food and direct spending. That is what the Government are trying to achieve. They want direct taxation on the consumption of goods. They want people to avoid tax as far as they can.
I say that every capitalist wants to achieve a black economy because it gives a number of clear advantages to employers who operate within the black economy. It is about exploiting workers to the maximum because there is no question of the trade unions operating within the black economy. There is no national insurance or health
and safety standards.
Unless the Minister announces that he will accept the new clause or explains what positive steps the Government will take to eliminate the black economy and to do something positive about tax evasion we must conclude that they are not sincere.

Mr. Hayhoe: The new clause calls for the publication, within 12 months of the passing of the Act, of a report by the Inland Revenue on the scale and nature of lax avoidance and evasion. Little has been said about that proposal. Most of the debate has been about the wider issues of avoidance and evasion. Little attention has been paid to the effectiveness of the new clause.
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was unconvincing when he commended the new clause to the House. He began by referring to some of my remarks about the black economy, with the snide implication that I either approved or condoned tax evasion, which he knows to be false. I presume he read what I said. I said:
there are some aspects of the black economy that are not bad. I would have thought there was no difference between us in the House about the fact that fraud is fraud wherever it occurs, whether in the taxation system or in the DHSS."—[Official Report, 9 February 1984; Vol. 53, c. 1012.]
I made it abundantly clear that I was totally opposed to fraudulent behaviour in the black economy. My comments were exemplified by the hon. Member for Middlesbrough (Mr. Bell) in his intervention. He may unwittingly have supported my view.
Hon. Members have asked about the size of the black economy. Most people who have looked into the matter, and clearly the members of the Committee of Public Accounts, know that a reliable measurement is not possible. So far no inquiry has produced results that are generally accepted or demonstrably correct. The Revenue Department have definite knowledge of the size only of


those parts of the black economy which they have uncovered, which inevitably leaves much uncertainty about the total.
In April 1982, as the hon. Member for Workington (Mr. Campbell-Savours) said, Sir Lawrence Airey, the chairman of the Board of Inland Revenue, told the CPA that such evidence as there was pointed to the size of the black economy as being towards the lower end of a range of between 6 and 8 per cent. of GDP, which, where the direct taxes administered by the Inland Revenue would represent about £15 billion, the tax loss would be about £4 billion. The Inland Revenue is doing further work on this general area, but has no reason as yet to revise those estimates. When its work is completed, it will be reported at Question Time, to the CPA, or in some other way to the House.
The Revenue keeps a constant watch for abuse of tax law whether by contrived avoidance or by deliberate evasion. The evidence for that lies in the measures brought forward by Ministers, on the Department's advice, to counter specific loopholes in tax law, and improvements over time in the figures for recoveries of tax, interest and penalties from would-be evaders. The Government have announced substantial redeployment of staff for anti-evasion work within the overall reduced staff ceilings for the whole of the Inland Revenue.
Tax avoidance—this is the accepted terminology—is legal. It is not unlawful. No one is obliged to order his affairs so as to pay the maximum amount of tax, but highly artificial arrangements, which may result in substantial losses of revenue, must be stopped when discovered. The Government's record shows that they have taken and are taking action to counter unacceptable avoidance in the interests of the great majority of taxpayers, who do not have recourse to devices contrary to the spirit of the law.

Mr. Canavan: If the Inland Revenue is so efficient, why is it that people such as the Vesteys and Baroness Carnegy — who was a political appointee of the Government — can get away with tax avoidance and evasion and run away with public money? What is going on? Will the Minister take control of this, or will he turn a blind eye to the problem and allow all those people from the House of Lords to run away with public money?

Mr. Hayhoe: I realise that at this early hour of the morning the hon. Gentleman is tired. As I was about to come to tax evasion, perhaps he would do me the courtesy of listening to what I have to say, as I listened to him.
The Government have taken the view that, by its nature, it is impossible to make any firm estimate of the scale of tax evasion or the amount of tax lost through it. But Ministers are not complacent about this; they recognise that tax evasion takes place in many areas and on a substantial scale. We are determined to ensure that evasion is tackled, not only because of the amount of tax potentially at stake but because it is only right that all should pay their fair share of tax.
I shall outline some of the efforts that are being made. The Government have increased, or have plans to increase substantially, the staff involved in investigation work—

Mr. Foulkes: On a point of order, Mr. Deputy Speaker. Is it in order for a Minister to begin his speech

by implying that you and your predecessors in the Chair were wrong to allow other hon. Members to speak in this debate because we were out of order, and then for the Minister to deal with none of the points raised in the debate but to read a prepared speech that was obviously written long before he heard any of the points raised in the debate?

Mr. Deputy Speaker (Mr. Harold Walker): I have not heard anything in the Minister's speech that is out of order.

Mr. Hayhoe: I am sorry that the hon. Gentleman is so unwilling to hear about the positive action that the Government are taking to deal with the problems of tax evasion. They have increased, or have plans to increase substantially, the staff involved in investigation work, and during 1984 the Customs and Excise will employ a further 150 staff on control duties to counter VAT evasion. Last November the Government—

Mr. Maxton: Will the Minister give way?

Mr. Hayhoe: On three occasions during the debate Opposition Members implied that the number of Inland Revenue staff devoted to dealing with such problems has been reduced. I am giving the House the facts, which are that these Inland Revenue staff has increased, and I shall not give way until I have finished this passage in my speech.
Last November the Government authorised an additional 850 Inland Revenue staff to tackle tax evasion by "moonlighters", people with secondary incomes, and by "ghosts", who are people unknown to the Revenue. Those were the problems mentioned by the hon. Member for Workington. That decision followed the successful experiment begun in 1982 when 70 tax officers, higher grade, were deployed on this work. The staff of the PAYE audit department, which has almost doubled since 1979, will be further increased by more than 250 up to 1988. There is clear evidence that the number of tax inspectors specifically deployed to counter tax evasion in the black economy has increased and is increasing.

Mr. Maxton: Is that an increase in the total number of staff in the Inland Revenue or just a redeployment of existing staff? Has the staff increased since 1979, or is it true that the numbers were reduced dramatically by the Government but are now being increased because they have realised the problem? How many of the 150 new Customs and Excise staff have been employed to deal with the changes in the VAT rules that were introduced in this Finance Bill?

Mr. Hayhoe: Had the hon. Gentleman listened to what I was saying, he would have heard me say that within the reduced overall numbers of the Inland Revenue, extra resources had nevertheless been, and were being, deployed against tax evasion.

Mr. Barron: rose—

Mr. Hayhoe: It is absurd, when I am answering one of his hon. Friends, for the hon. Gentleman to intervene. The hon. Member for Glasgow, Cathcart (Mr. Maxton) asked about VAT. For the extension of the VAT base in the Budget, at least 100 extra staff are being deployed, separate from the extra 150 staff to whom I referred earlier. It is clear, therefore, that under this Government there has been a steady increase in the numbers employed


in the Revenue departments dealing with the black economy and evasion. [Interruption.] These facts may be unwelcome to Opposition Members, but it is clear that the success of the Government's approach can also be measured by the growth in the amount recovered. The yield from investigation work grew from £111 million in 1979 to £352 million by October 1983.
The hon. Member for Workington referred, rightly—because he has clearly studied these matters with care—to the Keith report. I was surprised that he was not aware of the statement made by the Chancellor of the Exchequer earlier this year to the effect that conclusions on the VAT sections of Keith would be brought forward in time for legislative proposals to be published in the 1985 Finance Bill.
On the direct tax net, the Keith committee saw a need for more radical modernisation, and some of the proposals would require substantial adjustments in working procedures. The Board of Inland Revenue is having further consultation on these matters with interested parties and I hope that in the light of those discussions it will be possible to bring forward next year draft clauses representing the Government's conclusions with a view to legislation in 1986.
The hon. Member for Workington was right to say that the Keith proposals were a much more effective way to deal with these matters than anything that could arise from the new clause that is now before the House. Because, in my view, the adoption of the new clause would not help in any way, I ask the House to reject it.

Several Hon. Members: rose—

Mr. Deputy Speaker: The Question is that the clause be read a Second time. As many as are of that opinion—

Mr. Canavan: On a point of order, Mr. Deputy Speaker. Is it not permissible for hon. Members to take part in the debate?

Mr. Deputy Speaker: Hon. Members are, of course, permitted to lake part in the debate, but only once on Report, and the hon. Members who rose when I put the Question had already spoken.

Question put, That the clause be read a Second time:—

The House divided: Ayes 72, Noes 238.

Division No. 404]
[3.25 am


AYES


Ashdown, Paddy
Deakins, Eric


Ashton, Joe
Dixon, Donald


Atkinson, N. (Tottenham)
Dormand, Jack


Banks, Tony (Newham NW)
Fields, T. (L'pool Broad Gn)


Barron, Kevin
Fisher, Mark


Beckett, Mrs Margaret
Foulkes, George


Beith, A. J.
Golding, John


Bell, Stuart
Hardy, Peter


Bennett, A. (Dent'n &amp; Red'sh)
Harrison, Rt Hon Walter


Bray, Dr Jeremy
Hattersley, Rt Hon Roy


Bruce, Malcolm
Haynes, Frank


Campbell-Savours, Dale
Hogg, N. (C'nauld &amp; Kilsyth)


Canavan, Dennis
Holland, Stuart (Vauxhall)


Carlile, Alexander (Montg'y)
Johnston, Russell


Clay, Robert
Kennedy, Charles


Cocks, Rt Hon M. (Bristol S.)
Kirkwood, Archy


Cohen, Harry
Lewis, Terence (Worsley)


Cook, Robin F. (Livingston)
Litherland, Robert


Corbyn, Jeremy
Lloyd, Tony (Stretford)


Cowans, Harry.
Loyden, Edward


Cox, Thomas (Tooting)
McDonald, Dr Oonagh


Dalyell, Tam
McWilliam, John


Davis, Terry (B'ham, H'ge H'l)
Madden, Max





Marek, Dr John
Sedgemore, Brian


Maxton, John
Skinner, Dennis


Meadowcroft, Michael
Smith, C.(Isl'ton S &amp; F'bury)


Mikardo, Ian
Snape, Peter


Mitchell, Austin (G't Grimsby)
Spearing, Nigel


Nellist, David
Strang, Gavin


O'Brien, William
Thompson, J. (Wansbeck)


Park, George
Wallace, James


Penhaligon, David
Wardell, Gareth (Gower)


Pike, Peter
Welsh, Michael


Powell, Raymond (Ogmore)
Wrigglesworth, Ian


Randall, Stuart



Richardson, Ms Jo
Tellers for the Ayes:


Rooker, J. W.
Mr. Allen McKay and Mr. John Home Robertson.


Ross, Stephen (Isle of Wight)





NOES


Alexander, Richard
Forsyth, Michael (Stirling)


Alison, Rt Hon Michael
Forth, Eric


Amess, David
Freeman, Roger


Ancram, Michael
Gale, Roger


Arnold, Tom
Galley, Roy


Ashby, David
Gardiner, George (Reigate)


Atkinson, David (B'm'th E)
Garel-Jones, Tristan


Baker, Nicholas (N Dorset)
Goodhart, Sir Philip


Baldry, Anthony
Goodlad, Alastair


Banks, Robert (Harrogate)
Gorst, John


Batiste, Spencer
Gower, Sir Raymond


Beaumont-Dark, Anthony
Grant, Sir Anthony


Bellingham, Henry
Greenway, Harry


Best, Keith
Gregory, Conal


Bevan, David Gilroy
Griffiths, Peter (Portsm'th N)


Biffen, Rt Hon John
Grist, Ian


Biggs-Davison, Sir John
Ground, Patrick


Blaker, Rt Hon Sir Peter
Hamilton, Hon A. (Epsom)


Bonsor, Sir Nicholas
Hamilton, Neil (Tatton)


Boscawen, Hon Robert
Hanley, Jeremy


Bottomley, Peter
Hannam, John


Bottomley, Mrs Virginia
Hargreaves, Kenneth


Bowden, A. (Brighton K'to'n)
Harris, David


Bowden, Gerald (Dulwich)
Harvey, Robert


Brandon-Bravo, Martin
Hawksley, Warren


Bright, Graham
Hayes, J.


Brinton, Tim
Hayhoe, Barney


Brittan, Rt Hon Leon
Hayward, Robert


Brooke, Hon Peter
Heathcoat-Amory, David


Brown, M. (Brigg &amp; Cl'thpes)
Heddle, John


Browne, John
Henderson, Barry


Bruinvels, Peter
Hickmet, Richard


Buck, Sir Antony
Hind, Kenneth


Budgen, Nick
Hirst, Michael


Burt, Alistair
Holt, Richard


Butterfill, John
Hooson, Tom


Carlisle, John (N Luton)
Howard, Michael


Carlisle, Kenneth (Lincoln)
Howarth, Alan (Stratf'd-on-A)


Carttiss, Michael
Howarth, Gerald (Cannock)


Cash, William
Hubbard-Miles, Peter


Chalker, Mrs Lynda
Hunt, David (Wirral)


Chope, Christopher
Hunter, Andrew


Clark, Dr Michael (Rochford)
Jessel, Toby


Clark, Sir W. (Croydon S)
Johnson-Smith, Sir Geoffrey


Cockeram, Eric
Jones, Robert (W Herts)


Colvin, Michael
Kellett-Bowman, Mrs Elaine


Conway, Derek
Key, Robert


Cope, John
King, Roger (B'ham N'field)


Cormack, Patrick
Knight, Gregory (Derby N)


Couchman, James
Knight, Mrs Jill (Edgbaston)


Cranborne, Viscount
Knowles, Michael


Currie, Mrs Edwina
Lang, Ian


Dickens, Geoffrey
Latham, Michael


Dicks, Terry
Lawler, Geoffrey


Dorrell, Stephen
Leigh, Edward (Gainsbor'gh)


Douglas-Hamilton, Lord J.
Lennox-Boyd, Hon Mark


Dover, Den
Lester, Jim


Dunn, Robert
Lightbown, David


Evennett, David
Lilley, Peter


Fallon, Michael
Lloyd, Peter, (Fareham)


Favell, Anthony
Lord, Michael


Fenner, Mrs Peggy
McCurley, Mrs Anna


Forman, Nigel
Macfarlane, Neil






MacGregor, John
Smith, Tim (Beaconsfield)


MacKay, Andrew (Berkshire)
Soames, Hon Nicholas


Maclean, David John
Speller, Tony


Malins, Humfrey
Spencer, Derek


Malone, Gerald
Spicer, Jim (W Dorset)


Maples, John
Spicer, Michael (S Worcs)


Marland, Paul
Squire, Robin


Mather, Carol
Stanbrook, Ivor


Maude, Hon Francis
Stanley, John


Mawhinney, Dr Brian
Steen, Anthony


Maxwell-Hyslop, Robin
Stern, Michael


Mayhew, Sir Patrick
Stevens, Lewis (Nuneaton)


Merchant, Piers
Stevens, Martin (Fulham)


Meyer, Sir Anthony
Stewart, Allan (Eastwood)


Miller, Hal (B'grove)
Stewart, Andrew (Sherwood)


Mills, Iain (Meriden)
Stewart, Ian (N Hertf'dshire)


Mills, Sir Peter (West Devon)
Stokes, John


Mitchell, David (NW Hants)
Stradling Thomas, J.


Moate, Roger
Taylor, John (Solihull)


Montgomery, Fergus
Taylor, Teddy (S'end E)


Moore, John
Temple-Morris, Peter


Morrison, Hon P. (Chester)
Terlezki, Stefan


Moynihan, Hon C.
Thompson, Donald (Calder V)


Mudd, David
Thompson, Patrick (N'ich N)


Needham, Richard
Thurnham, Peter


Nelson, Anthony
Townend, John (Bridlington)


Neubert, Michael
Townsend, Cyril D. (B'heath)


Nicholls, Patrick
Tracey, Richard


Norris, Steven
Trippier, David


Oppenheim, Philip
Twinn, Dr Ian


Ottaway, Richard
Viggers, Peter


Page, Richard (Herts SW)
Waddington, David


Parris, Matthew
Wakeham, Rt Hon John


Pawsey, James
Waldegrave, Hon William


Porter, Barry
Walden, George


Powell, William (Corby)
Walker, Bill (T'side N)


Powley, John
Waller, Gary


Proctor, K. Harvey
Ward, John


Rathbone, Tim
Wardle, C. (Bexhill)


Rees, Rt Hon Peter (Dover)
Warren, Kenneth


Renton, Tim
Watson, John


Rhys Williams, Sir Brandon
Watts, John


Ridsdale, Sir Julian
Wells, Bowen (Hertford)


Robinson, Mark (N'port W)
Wheeler, John


Roe, Mrs Marion
Whitfield, John


Rowe, Andrew
Wiggin, Jerry


Rumbold, Mrs Angela
Winterton, Mrs Ann


Ryder, Richard
Winterton, Nicholas


Sackville, Hon Thomas
Wolfson, Mark


Sainsbury, Hon Timothy
Wood, Timothy


Sayeed, Jonathan
Woodcock, Michael


Shaw, Giles (Pudsey)
Yeo, Tim


Shelton, William (Streatham)
Young, Sir George (Acton)


Shepherd, Colin (Hereford)



Shepherd, Richard (Aldridge)
Tellers for the Noes:


Silvester, Fred
Mr. Douglas Hogg and Mr. John Major


Sims, Roger



Skeet, T. H. H.

Question accordingly negatived.

New Clause 18

SAVING FOR POSTPONED ACCOUNTING SYSTEM FOR VALUE-ADDED TAX ON SPIRITS, BEER, WINE, MADE-WINE AND CIDER

`Any power to make regulations in respect of value-added tax under the Value Added Tax Act 1983 shall not, after the passing of this Act, be construed as enabling regulations to be made which would cancel the system whereby spirits, beer, wine, made-wine and cider may be removed from warehouses without payment of tax by a registered taxable person in the course of a business carried on by him and, accordingly, regulation 34 of the Value Added Tax (General) Regulations 1980 (which provides for that system) shall be incorporated in this section.'.—[Mr. Bowen Wells.]

Brought up, and read the First time.

Mr. Bowen Wells: I beg to move, That the clause be read a Second time.
I shall be as brief as I can in order not to detain the House. The purpose of the new clause is to exempt wine, spirits, beer, made-wine and cider from any attempt by the Government, as proposed in the Budget, to abolish the postponed accounting system. The immediate question that one must ask is: why should the industry be given special treatment? Before I make the case, I must declare a special interest as I am employed as parliamentary consultant to International Distillers and Vintners.
The reason why this should be treated as a special case is that the system of postponed accounting enabled both imported and domestically produced wine, spirits, made-wine or cider to be treated in exactly the same way for VAT purposes. That meant that there was an 11-week period after importation or after the wine had been taken out of bond in the domestic warehouse before VAT was paid. Under the new proposed regulations, four weeks only will be allowed for that payment. It will put up the working capital in the industry by about £40 million, and, on a per annum basis, will cost the industry between £3·6 million and £4 million. I believe that that is an unintended impost on the industry as a result of the abolition of postponed accounting. The Chancellor, in his explanation in the Budget, said that he was withdrawing postponed accounting on imports because he was
not prepared to put British industry at a competitive disadvantage in the home market any longer." —[Official Report, 13 March 1984; Vol. 56, c. 300.]
By putting additional imposts on the industry, my right hon. Friend is very much putting domestically produced whisky and spirits of all kinds, such as gin and vodka, and wine produced in this country at a serious disadvantage to competitors in the European Economic Community. I do not believe that he intended to do that.
The industry as a whole has suffered imposts throughout the Budget, particularly in stock relief, where there is a uniquely high ratio of stock to sales because of the necessity to mature spirits. The abolition of stock relief will hit the industry very hard. It is estimated that that will cost the industry another £40 million per annum. The duty on spirits has been increased roughly in line with inflation. The industry has also suffered a loss through the reduction of tolerances in the calculation of duties. That will cost an additional £7 million. Therefore, the Chancellor has hit the industry extremely hard in the Budget—I believe quite unintentionally. The purpose of the new clause is to exempt it from the result of abolishing the postponed accounting system.
I know that my right hon. and hon. Friends on the Front Bench will be loth to make any exemption because on one exemption will follow others. That is their fear. However, there are other ways in which they could restore the competitive position of the industry. One is by extending the deferred duty arrangements to which they agreed 18 months ago. They agreed on a period of four weeks at that time. They could extend that period and thus return some of the unintended benefit that they would get from abolishing postponed accounting. I beg the Government seriously to consider exempting the industry from abolition of postponed accounting so that it may retain its competitive position vis-a-vis spirits and wines produced on the continent.

Mr. John Townend: First, I declare an interest in that I have been 25 years in the wine and spirit industry.
Since my right hon. Friend the Chancellor announced in the Budget the bringing forward of VAT payments on imports, it has been very difficult for the industry to ascertain exactly what is intended. It accepted that the period of credit would be reduced, but it was shocked to discover that this would apply not just to imports but to home-produced spirits. The second shock was that in respect of VAT, for which the credit period would be reduced to four weeks, the Customs and Excise now wants financial guarantees. This is the first time that any VAT registered trader has been asked to provide such guarantees. It will be expensive for the industry, because the guarantees will have to be provided by insurance companies and banks which will charge a good deal for them. Even more serious, however, if a bank provides a VAT guarantee of, say £50,000, the overdraft facilities available to the trader will be reduced by double that amount, which will impose a great financial burden especially on small businesses.
Therefore, I support the new clause. I ask the Government to reconsider the proposals, which are not due to be implemented until October. Earlier today my hon. Friend the Financial Secretary said that it was the Government's policy to remove inconsistencies, but there is a clear inconsistency here. Wholesalers taking goods out of bond are to be asked for a VAT guarantee, but retailers selling them are not asked for a guarantee. Is this the thin end of the wedge? Will next year's Budget require financial guarantees from all VAT registered traders? I ask my hon. Friend the Minister to consider this very carefully.

Mr. Michael Hirst: I welcome the opportunity to support the new clause. I have no interest to declare other than that, as a Scottish Member, whisky is important to my kinsfolk and also to me as an occasional tippler.
The House would not do justice to the whisky industry if it overlooked its importance as an employer, exporter and generator of about £840 million per annum in excise duty and VAT for my right hon. Friend the Chancellor's coffers. The industry's difficulties are well known. Many distilleries are operating at very low capacities or have been mothballed because of the problems that have arisen in recent times.
The industry has suffered in three specific ways. One of the tolerances to which my hon. Friend the Member for Hertford and Stortford (Mr. Wells) referred has caused considerable difficulties for operating profit levels in the whisky industry, and the Budget has brought two further difficulties. One is the withdrawal of stock relief, on which I made a short contribution in Committee on clause 47 stand part. At that time my hon. Friend the Financial Secretary expressed sympathy for the problem but said that he was unwilling to make a specific exemption. I remind the House again that no other industry has a stock to sales ratio of nine to one and stands to be so hard hit by the withdrawal of stock relief, due to the long production cycle of maturing whisky stocks. The industry has also been badly hit by the withdrawal of the postponed accounting system.
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I recognise that all importers will be hit by the withdrawal of PAS, and that it is one of the fundamental planks of the Budget strategy. My hon. Friends and I realise that my hon . Friend the Minister of State will say that he is reluctant to favour the whisky industry or the wine and spirit industry as opposed to other importers. I appreciate that he would find it difficult to accede to the request that is central to the new clause. Nevertheless, I hope that he will bear in mind that, because of what has happened in the past few months, the Scotch whisky industry in particular has suffered from a number of problems which have affected its profitability and with it both investment in maturing whisky stocks and the capital investment that the industry needs if it is to stay competitive.
I do not believe that the Government intended to cause some of the difficulties that have arisen, and I hope that my hon. Friend will be able to show that the Government are concerned about the future of the industry. If the new clause is unwelcome to him, I hope that it may be possible for the Government to take up the suggestion made by my hon. Friend the Member for Hertford and Stortford about duty deferment. This industry has been peculiarly hard hit. I hope that my hon. Friend can find some way of relieving the burdens upon it.

Mr. Bell: It is interesting to hear how many special interests are declared on new clause 18, and how many apologies are made on the Chancellor's behalf, attempting to give the impression that when he introduced the provision in question he did not know what he was doing and that no one foresaw that the Revenue would receive an extra £3 million or £4 million as a result. That would make the Chancellor smile, if he were here.
We remember very clearly the waving of Order Papers at the end of the Chancellor's Budget statement. I am sure that those hon. Gentlemen who have spoken in favour of the new clause waved their Order Papers with enthusiasm at that time. Those of my hon. Friends who spoke in the debate following the Budget statement and pointed out that the euphoria would be short-lived have seen their prophecy fulfilled even before the Report stage is completed. Interest rates are rising by 2 per cent., and on Friday the building societies are to raise their mortgage rates.
The entire thrust of the Budget was such that we cannot see any argument for making .exceptions on the lines now being suggested. The heart of the Budget strategy was to take £1·4 billion out of the system by way of VAT payments at the level of the ports so that the Chancellor could abolish the national insurance surcharge and so merit more flag-waving and the waving of more Order Papers in the House. Many will wonder why those who were so pleased about that provision—a one-off measure which yielded £1·4 billion for the Treasury—should now be pleading for some reduction in the £3 million or £4 million haul that is now being proposed. We feel that there is a clear strategy in the Budget—a strategy of which the Chancellor was proud. He talked of tax reform and of a Budget that would halt or contain inflation. That promise has been torn to shreds in two months. We cannot but believe that that provision in the Budget was carefully thought out to give money to the Treasury. The Treasury will have to raise money where it can, how it can and as best it can. This is an example of how it will do that. We feel no sympathy for Conservative Members who


applauded the Chancellor and supported his measures, who waved their Order Papers, and have come here tonight to ask for special treatment.

Mr. Hayhoe: In short, succinct and clear speeches, my hon. Friends have moved and supported new clause 18. In the light of what they said, I do not think that they will be surprised to learn that I am advised to resist this proposal. It would retain VAT postponed accounting for spirits, beer, wine, made wine and cider after postponed accounting for imports is withdrawn on 1 Octber. They made it clear that they were indulging in special pleading for an industry which they think deserves special treatment.
The costs involved are not the £3 million or £4 million that the hon. Member for Middlesbrough (Mr. Bell) referred to—the cost of new clause 18 in this financial year would be about £50 million. I am sure that my hon. Friends will understand that such a sum cannot be lightly forgone within the overall context of the Budget. If the withdrawal of postponed accounting produces well over £1 billion this financial year, it must be recognised that it is not a painless operation for those who are at the contributing end.

Mr. John Townend: Does my hon. Friend agree that during the Budget my right hon. Friend the Chancellor made it clear that he was speaking about imports? We are now told that home-produced spirits are involved. What would be the cost to the Exchequer if only home-produced spirits were exempt?

Mr. Hayhoe: About £30 million would be attributable to imports and £20 million would be attributable to home-produced goods. My hon. Friend, who is an expert in these matters, will understand that when the postponed accounting system operated, there was equality of treatment in regard to VAT between home and imported wines and spirits. The objective of the Bill is to retain that equality. I am sure that people in the trade who have an interest in imports would be deeply worried by any suggestion that there should be an advantageous regime available just for the home-produced goods in this area alone, where there has been equality in the past. It would therefore be wrong to make a special case in favour of the alcoholic drinks industry in connection with this VAT measure. If special treatment were accorded to this industry, there would instantly be a queue of others seeking special treatment.
I recognise what has been said about the importance of the industry, especially the scotch whisky industry, which makes a significant contribution to our exports. I am always willing to, and I know that my right hon. Friend the Chancellor always does, examine all aspects of the industry when forming Budget proposals. Stock relief has been mentioned, but as it is the subject of amendment No. 113, which we shall consider later, I shall reserve my remarks on it until then. In the light of what I have said, I hope that my hon. Friend will not press the new clause.

Mr. Bowen Wells: I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 24

SECTION 8o FINANCE ACT I981

`(1) In subsection (2) of section 80 of the Finance Act 1981, insert after the words "and that amount" the words "less the amount of any credit which would be available to the trustees under section 10 of the Capital Gains Tax Act 1979".

(2) The amendment should take effect from 6th April 1981'. —[Sir William Clark.]

Brought up, and read the First time.

Sir William Clark: I beg to move, That the clause be read a Second time.
The clause is a simple amendment, and I hope that my hon. Friend the Minister will be able to accept it. It refers to the assessment of capital gains tax where there is a trust account in a foreign country but the beneficiaries of that trust account are in this country. If there is a capital distribution, those beneficiaries must pay capital gains tax in the same way as anyone else.
Section 80 of the Finance Act 1981 changed the method of assessment. Before 1981, if the foreign trustee were to make a capital distribution from a trust, capital gains tax was paid by the beneficiary, but in some cases the foreign country in which the trust was situated might have had a capital gains tax of its own. America, for example, has a capital gains tax. Before 1981, the Revenue, as with all double taxation agreements, rightly gave credit for the capital gains tax paid in the foreign country. Therefore, if there were a capital gains liability in this country of, shall we say, £1,000, but £200 had been paid in America, the charge in this country would be £800.
I understand on good authority that the Inland Revenue says that section 80 is not clear in its interpretation of the relief on foreign tax paid. The amendment is tabled in the hope that my hon. Friend will accept it and thus ensure that there is no ambiguity.

Mr. Hayhoe: As my hon. Friend would be the first to acknowledge, this is a complicated area of tax legislation. I am advised that the clause as drafted would allow the deduction of foreign tax paid by the trustees of a nonresident trust in calculating trust gains attributable to United Kingdom beneficiaries. The clause is unnecessary because there is an existing capital gains tax relief in section 11 of the Capital Gains Tax Act 1979, which allows, and provides for, precisely such a deduction.
My hon. Friend may be concerned with a different point from that to which he referred, whether tax credit relief is available in these circumstances to allow the deduction of foreign tax paid by the trustees from the tax paid by the United Kingdom beneficiaries. The position is complicated, and the Inland Revenue already has it under review, as my hon. Friend suggested. The Revenue has been legally advised that tax credit relief is available only where the amount of trust gains on which the beneficiary is to be charged to tax can be clearly and unambiguously identified with the trust gains that have been subject to the foreign tax.
I have said enough to acknowledge the complexity of this matter. It is clear on the legal advice that I have that the clause as drafted is unnecessary because it means only what is already in our legislation. Therefore, I hope that my hon. Friend will withdraw his clause. I have responded to his other point by saying that the Inland Revenue has this matter under consideration. I am sure that my hon. Friend the Financial Secretary will be writing to my hon. Friend on the details. If legislation were required, it could be introduced in a later Financial Bill.

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Sir William Clark: I am grateful for my hon. Friend's reply, although my advice is contrary to his. Section 80 of the 1981 Act changed the method of assessment for capital gains tax for foreign trustees. In view of what my hon. Friend has said, and the fact that he has accepted the spirit of my new clause, although not the exact wording, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 26

EMPLOYER-PROVIDED NURSERIES

`In section 62 of the Finance Act 1976 (exceptions from general charge) the following subsection shall be added at the end:—
(9) section 61 above does not apply to a benefit consisting in the provision by the employee's employer of nursery facilities for children under the age of five years provided the nursery facilities are provided for the children of staff generally .". '.—[Mr. Terry Davis.]

Brought up, and read the First time.

Mr. Terry Davis: I beg to move, That the clause be read a Second time.
The purpose of the new clause is to provide tax relief for employer-provided nurseries, or, as they are often called, workplace nurseries. I make no apology for raising this subject so late into the night that it is the morning. As we debate it, parents all over the country will be rising, getting up their children and going to work. Many of those parents will have children under the age of five, whom they will be taking to child minders. Other parents will be taking their children to nurseries provided by local authorities, and about 2,000 will be taking their young, pre-school age children to spend the day in nurseries provided by their employers. This clause concerns those parents.
Over the years, these workplace nurseries have been provided and, until a few years ago, there was a steady expansion. They numbered some 90 or 100 about 10 years ago, but that number has recently declined as a result of the recession and there are now about 70 or 80. These nurseries are provided for several reasons. They are the result of successful negotiations by trade unionists, who have managed to persuade employers that it is in their interests, and those of their employees, to provide nursery facilities for the children of their employees. Some are provided as a result of the benevolence and generosity of employers; others—more often—have been provided by employers in recognition of something that is in their interests. I suspect that most of the workplace nurseries have been provided for a mixture of these reasons.
The original workplace nurseries were provided because employers began to realise that it was in their interests to retain trained staff, especially those with scarce skills, and to encourage women with children to return to work as soon as possible after their children had been born. The original intention was to provide facilities that would enable women to return to work after their children had been born, which was in the interests of the employer who had difficulty recruiting women, especially women with scarce skills.
Recently, there has been an increasing recognition that if employers are to provide genuinely equal opportunities for women, facilities must be available for women to leave

their children during the working day, and those facilities should be provided to a certain standard. That is what we are discussing in this debate, not child minders.
The new clause is supported not only by the Equal Opportunities Commission, which has no axe to grind, but by hon. Members on both sides of the House. One of the purposes of the new clause is to provide equal opportunities for women with children. That was the intention of the original nurseries. Women should have those opportunities whether they are single, divorced, widowed or married. The one thing that they have in common is children under the age of five.
The provision of workplace nurseries enables a woman, particularly a married woman, to return to work at an early date, which benefits the income of the family. I should have thought that that, too, would commend itself to this Government, as it enables many families, especially those with low incomes, to enjoy the benefit of two incomes. Thus, they avoid the need to claim family income supplement and other benefits, and they can enjoy a higher standard of living. It is no secret that many couples, particularly in the south-east of England, are able to obtain a mortgage and buy their own homes only with two incomes. The necessity of having two incomes drives many married women with children to work.
The new clause would also benefit men, who are sometimes single parents. it is often forgotten that many widowers, and divorced men who have been given the custody of their children, have all the problems experienced by women who are single parents. Therefore, the new clause would benefit men as much as women.
The new clause encourages the provision of workplace nurseries for all parents, including single parents, if they have children under the age of five years. The clause is especially important, of course, to single parents, both men and women.
In the general household survey carried out in 1982 it was estimated that one in eight of households with children are dependent on single parents. the new clause would provide equally for the sexes, and for employees, whether or not they are single parents.
Another point, often forgotten, is that the experience of a workplace nursery is as good for children as it is for parents. Many children of single parents are only children, and they in particular will benefit from the contact and social discourse with other children. I shall not enlarge, at this time of the night—or rnorning—on the benefits that arise for children, but that important point needs to be taken into account. We are discussing the provision for children as much as for their parents.
I stress that point because, in our first debate on new clause 19, which provided tax relief for stud farms, the hon. Member for Langbaurgh (Mr. Holt) referred to the effect on children of being able to enjoy riding ponies. I hope that the hon. Gentleman will support us on this clause, because it would provide a much more important benefit for many children — being able to attend nurseries.
We tabled a similar new clause in Standing Committee, but withdrew it after debate and before voting as a result of the Financial Secretary's comments. I accepted at the time, as I accept now, that his comments about the drafting of that clause were well meant. I bear no ill feeling about that. He pointed out that, in his opinion, the new clause contained four technical defects.
First, he told us that the word "children" was not defined. I should have thought that a child is a child is a child. But it seems that for Treasury purposes, a child must be defined. So we have made clear in the wording of the new clause that we are referring to children under the age of five years — children below the age at which they must attend school.
Secondly, the Financial Secretary pointed out that the words "nursery facilities" were not defined. He argued that, left as it was, the definition would include the benefit of an accompanying nanny provided for a director's child. The Financial Secretary may have been teasing me because he is well aware that the Opposition do not intend to provide tax relief on company nannies for directors' children. He also pointed out that the word "available" was not defined, which he regarded as a technical defect.
We have taken care of those technical defects in our rewording of the new clause. We have not sought to define "nursery facilities" tightly, because we want to allow the maximum flexibility for the provision of workplace nurseries. We have ensured, through the wording of the new clause, that the provision must be available to all employees. In no sense do we believe that could cover the provision of a company nanny for a director's child. We have used the words "staff generally", which are already incorporated in legislation. We have modelled the new clause on a specific provision which exempts workplace canteens in the Finance Act 1976.
The fourth technical defect to which the Financial Secretary drew our attention was that the new clause only exempted benefits under section 61 of the Finance Act 1976. He therefore argued that a taxation charge could still arise under schedule E if the employer met the employee's pecuniary liability under the vouchers legislation or as a reimbursement of expense under section 60 of the Finance Act 1976.
We have not amended the new clause to take account of that point because we are not seeking to exempt reimbursed expenses. In fact, the Financial Secretary is trying to push us into going much further than we want to go. Our intention is to exempt from tax the provision of a workplace nursery by an employer for all his employees' children under five. We are not seeking to exempt the provision of child minding or the reimbursement of expenses incurred by employees in arranging for private child care.
It is explicit in the new clause that the provision is available for all employees, in the same way that a workplace canteen is available for all employees. That is the purpose, intent and effect of the new clause.
In my opinion, it merely states a provision which was widely understood to have existed previously. It has always been understood by everyone concerned with the expansion, growth and provision of workplace nurseries that the benefit obtained by an employee in having a child attend a workplace nursery was not subject to tax.
Indeed, a manual published by the Equal Opportunities Commission a few years ago specifically included the comment that this provision was tax exempt. In our discussions in Committee, the Financial Secretary pointed out that that manual was published after the Kingsway Children's Centre had been established. That was a fair

point, because our concern tends to concentrate on what has happened in the case of the Kingsway Children's Centre, for reasons that I shall explain later.
We did not seek—I certainly did not as Opposition spokesman—to attribute the problems of the Kingsway Children's Centre to the manual published by the Equal Opportunities Commission. Nevertheless, it is a fact that that manual gave wide credence to the idea that the provision of a workplace nursery was tax exempt. That was widely believed, and it reflected what was widely believed before the manual was published.
The Financial Secretary told us that the Inland Revenue did not know about that manual and had not been consulted about its wording — at least, not formally. I entirely accept what he has said. I do not seek to argue who was responsible for the mistake in the Equal Opportunities Commission manual. I seek only to make the point that it was generally accepted that the words in the manual were correct. They reflected general opinion.
The Consumers Association has for many years published tax guides, called the Which? tax guides. I have checked the guides that have been published since 1976, and in every year they have included the specific statement that a workplace nursery is tax exempt and that an employee whose child attends a workplace nursery will not incur any extra liability to income tax as a result.
I am prepared to accept that the Inland Revenue and Treasury do not read the manuals published by the Equal Opportunities Commission. On the other hand, I would expect them to read and check the Which? tax guides.
4.15 am
I am surprised that that mistake has apparently been made not once or twice, but year after year. It has been repeated annually without anyone from the Treasury or the Inland Revenue drawing it to the attention of the Consumers Association. Therefore, it was reasonable for the public to believe that those provisions were tax-free.
Now the Inland Revenue is seeking to charge some people tax on the employer's contribution to a particular workplace nursery known as the Kingsway Children's Centre in London. It is seeking to do so for up to six years. People are thus being faced with tax bills of up to £3,000, and most of them are single parents who are employed not as company directors or higher paid employees but as clerks, typists and secretaries.
The Government's tactic throughout has been to pretend that our new clause goes much wider than it does. I believe that they have adopted that tactic because they know that they have a weak case. They have deliberately sought to pretend that the new clause goes further than it does, so that they can produce inflated estimates of what it would cost. In Committee, the Financial Secretary told us that the new clause in itself would cost £1 million. For the reasons that I gave then, I do not accept that calculation. More importantly, however, he told us that it would lead to a cost of £600 million in total if tax relief were given to all parents with children aged under five. We are talking not about all parents with children aged under five, but about those parents who work, and the estimated 2,000 of them whose children now attend workplace nurseries.
Another Government tactic to obscure the issue has been to argue that the benefit is taxable only if someone is a director or higher paid employee. The definition of a higher paid employee is that he should receive a total in


earnings of £8,500 per annum. That, of course, is a provision under the Finance Act 1976, and the sum of £8,500 was determined, I think, in 1979. That provision applies to all benefits and perks, such as company cars and all the other things that were being provided by employers before the Finance Act 1976. But it should be borne in mind when discussing the threshold that decides whether someone is regarded as a higher paid employee, that it is not only the earnings in the pay packet that are taken into account. The employer's contribution to a workplace nursery is also added to the wages.
The contributions of the employers who use the Kingsway Children's Centre amount to about £2,000 or £2,500 per annum. That is by no means exceptional. I understand that the contributions to some other workplace nurseries provided by London local authorities can amount to much more than £2,000 or £2,500 per annum. The contributions exceed those figures because many progressive local authorities in London arrange the workplace nurseries in such a way as to pay a higher subsidy for those with the lowest wages. Thus, the lower paid the employee, the higher the subsidy, and the more likely he is to be taxed on the employer's contribution to the workplace nursery. The subsidy even puts someone on £5,000 over that threshold of £8,500.
The case of the K.ingsway Children's Centre has given rise to much public comment. However, it is a fact that those who are employed and who are being paid about £6,000 a year will now be taxed as though they are directors or higher paid employees on £8,500 a year, because £2,000 or £2,500 is being added to their income of £6,000. Indeed, £6,000 a year is £120 a week, which is below the level of average earnings in this country. Those who get less than the average wage will now be treated as higher paid employees. I repeat that, in the case of the Kingsway Children's Centre, we are talking about secretaries, typists and clerical workers who work for NALGO. They are not paid enormous sums.
Other cases have been publicised. Hackney council, for example, provides a staff nursery. Among the people who take their children to that nursery are care assistants in old people's homes. They are not directors or high-paid employees, but working women — sometimes single parents—receiving low wages.
In the Finance Act 1976 some specific and limited exceptions were made. Taxed benefits included all benefits in kind provided at the cost of an employer. In 1976 I doubt whether anyone in the Labour Government envisaged that workplace nurseries would be taxed because they had never been taxed before. They were never taxed until 1983.
Earlier we discussed extra-statutory concessions by the Inland Revenue. One such concession is the luncheon voucher. Nothing in legislation states that luncheon vouchers should not be taxed. In theory, under the 1976 Act luncheon vouchers should be taxed, but the Inland Revenue, with the authority of Treasury Ministers, decided that they should not be taxed. That is an extra-statutory decision taken outside Parliament.

Sir William Clark: Luncheon vouchers are not taxed to help those who do not have canteen facilities. The provision is logical.

Mr. Davis: I am aware of the provisions that originally applied to workplace canteens. I accept that what the hon.

Member for Croydon, South (Sir W. Clark) says is true, but he must bear in mind that some employees use neither a workplace canteen nor luncheon vouchers. Many people pay for their dinners and lunches. Many people go to cafes or pubs, take sandwiches or go without. They are treated unfairly. If they have to go to a local cafe because their employer provides neither a canteen nor vouchers they have to pay for lunch out of taxed income. That is unfair. My point is that luncheon vouchers were excluded, not by Parliament, but by the Inland Revenue with Ministers' approval, as an extra-statutory concession. Why cannot the same apply to workplace nurseries?

Mr. Neil Hamilton: The anomaly has survived over many years. If it were considered afresh it might be removed. However, the concession is limited to 15p a day. Surely that would not be sufficient to meet the hon. Member's ambitions for workplace nurseries.

Mr. Davis: The subsidy for workplace canteens is not limited to 15p a day. There is no limit on that subsidy. I have news for the hon. Member for Tatton (Mr. Hamilton). He says that if we were considering the legislation ab initio it would not be included, but his right hon. and hon. Friends are now discussing whether to abolish the concession for workplace canteens and luncheon vouchers. I shall prove that later with quotations from letters written with the authority of the Chancellor of the Exchequer
I told the Standing Committee of a bigger anomaly. How do the Government explain their treatment of car parks?

Mr. Moore: They are taxable.

Mr. Davis: I have yet to meet a Member of Parliament who confesses to being taxed on his use of the car park in the Palace of Westminster. The Financial Secretary says that they are taxable. But they are not taxed. I do not mind workplace nurseries being taxable so long as they are not taxed. I am happy to settle for that compromise. The same should apply to sports clubs and social clubs. Workplace nurseries should be treated in the same way as drinking and sporting facilities. Why cannot pre-school children be treated in the same way as people who enjoy drink?
I shall not be deflected from the question of car parks. Car parking is a valuable benefit, especially in a city such as London. It costs a lot of money to park in a National Car Park in Victoria street or in the City. A car park provided by an employer is a great benefit. It need not be a fancy one, with names marking parking spaces, but merely a place in a courtyard, as is provided by the Foreign Office. The employee does not pay tax on it. Are any civil servants in the Foreign Office taxed on their use of the car park, which enables them to avoid having to use the National Car Park in Victoria street? The Financial Secretary will not answer that question.

Mr. Neil Hamilton: I shall correct the hon. Gentleman. If an employer purchases the use of a car parking space in a National Car Park, it is a taxable emolument. If it were declared, the Inland Revenue would undoubtedly tax it.

Mr. Davis: I was not talking about buying a space from NCP. I have worked for several employers and have often had the use of a car park, but I have never been taxed on its use, even when it had my name on it. I have never met a person who has been taxed on the use of a company,


factory or office car park. We know that canteens are not taxed, provided they are available to employees generally. The same presumably applies to car parks. I do not object to that. I do not think that they should be taxed; the Government do. My argument is that the Government should not exclude car parks and include workplace nurseries. They should be treated in the same way—neither should be taxed.
The Financial Secretary said that workplace nurseries have always been taxable. In Committee he told us that the media had blown one case up out of all proportion. He ignores the fact that this is the first time that any workplace nursery has been taxed to the best of anyone's knowledge. The Inland Revenue learned about the payments by two employers to the Kingsway Children's Centre in 1983 and proceeded to tax their employees. One of those employers was NALGO and the clerical workers affected were members of APEX.
The Financial Secretary told us that another employee was paying tax at the same time on the benefits that her employer had arranged at the same nursery. I appreciate the difficulties under which he works and realise that he would not have been given the name of that taxpayer. I know the name because the lady came to see me. I do not think that he was given complete information by the civil servants who briefed him.
It is true that a female employee who benefited from the Kingsway Children's Centre was told that she was liable to tax. The Revenue is trying to tax her for six years and is asking her to pay £3,000, although she is a single parent. She appealed, but withdrew the appeal because her trade union advised her that she could not win the appeal before the Commissioners and should rely on Parliament. Therefore, it is our job to take that decision. That is what the new clause is about. The NALGO employees, who have a good employer, will benefit.
NALGO has told the Inland Revenue that it will pay the back tax up to 1983. The Financial Secretary gave the Committee that information, so I do not feel inhibited in repeating it on the Floor of the House. But the Financial Secretary did not say that NALGO will not pay the back tax of people whom it no longer employs. What will happen to those who have left NALGO? Indeed, the lady who appealed has changed employment, so she cannot ask the employer who paid for the place at Kingsway Children's Centre to pay her back tax.
4.30 am
The reason why the Kingsway Children's Centre affair is so important is that I and my hon. Friends believe that it is the thin end of the wedge. As I said at the beginning of my speech, there are about 70 workplace nurseries in Britain. We have discovered none where the parents must pay tax on their employers' contributions. That happens only at Kingsway Children's Centre. I accept entirely that the staff of the Inland Revenue would have taxed themselves if their children had had places at the workplace nursery that used to be provided for the Inland Revenue Staff Federation at Cardiff, but none of them was taxed because none was above the threshold of £8,500.
The Government's case is that it would be difficult to distinguish in principle between the money paid for nursery provision for the under-fives and scholarships for older children to attend so-called public schools. But local

authorities have a mandatory duty to provide secondary school places for all children living in their areas. A parent who opts out of the state provision for secondary education cannot then claim tax relief on scholarships. They have the freedom of choice. They can send their children to public schools if they wish, but they should not ask Parliament to grant tax relief on the fees. The Government agree with us on that, because they closed the loophole of company scholarships for employees' children.
However, there is no duty on local authorities to provide nurseries. Some local authorities provide them, but others do not. The number of nursery places is totally inadequate, as the Fawcett Society told the Chancellor in a letter. There was no answer to that point in the letter that it received from a civil servant in the middle of June.
Even if local authorities provide nurseries, often there are insufficient places for the children whose parents wish them to attend. Birmingham has 1,345 places at 33 day nurseries. Only 1,000 children can attend those nurseries as a direct result of cuts in local government expenditure. The city of Birmingham is short of 60 nursery nurses, with the result that 300 children cannot be admitted. The nurseries are full, in the sense that capacity is determined by the amount of staff employed.
What should people do? If an employer says, "I believe that I should provide equal opportunities for my women staff. Therefore, I shall make available workplace nursery places so that women can have the same opportunities as are enjoyed by my male employees," he knows that the women who take advantage of that provision will be taxed as though they are higher-paid employees.
Outside the metropolitan areas the position is even worse, because there the provision of nurseries is the responsibility of the county and shire councils.
The Association of County Councils—a body which is not dominated by the Labour party—has written since our discussion in Standing Committee to commend the new clause. It recognises that it, too, benefits from the provision of workplace nurseries by employers. It argues in its letter, a copy of which has, I believe, been sent to the Government, that the workplace nursery allows single parents to obtain work without needing public financial support.
I should have thought that that would appeal to the Government because it reduces demand for public expenditure. Yet the Government are discouraging employers from providing what they will not allow local councils to provide. The Association of County Councils says that it cannot in the present climate provide enough nursery places, and adds:
Resources are unlikely to be available for local authorities to increase substantially their provision, so that it is in the interests of society that barriers should not be imposed by the taxation system against employers or voluntary organisations establishing such provision.
In other words, the people whose job it is to provide nurseries are strongly in support of the new clause and believe that the provision of workplace nurseries is a necessary step towards adequate state provision.
The Government argue, however, that such provision is unfair. They take that view because some employers do not provide workplace nurseries, so that the employees of those employers must themselves meet the cost of child care out of their taxed income. The Government claim that here is an anomaly that cannot be defended. I have explained that canteens are an anomaly in that some


employers, but not all, provide factory or office canteens. Employees whose employers do not povide canteen facilities must go elsewhere for their mid-day meal. The workplace nursery should be considered in exactly that light. The same applies to car parks; some employers provide them, others do not. Thus, some employees benefit from car parks while others do not. We do not complain about that situation.
The hon. Member for Devizes (Mr. Morrison) said in an earlier debate about stud farms that Opposition Members objected to concessions in that respect because they were not available to all. He was wrong. We do not object to all concessions which are not available to all. We are debating a concession which we are anxious to defend. We hope that more people will gradually benefit as more employers provide workplace nurseries as a result of the pressures which I outlined at the outset of my remarks.
The Government argue that it would be unfair if a workplace nursery were exempt from tax because other employees would be paying for child care out of taxed income. That is incorrect for two reasons. First, as I said, it is not reasonable to argue that because some employees do not enjoy the benefit, nobody should enjoy it. Secondly, it is based on a misunderstanding of the system of workplace nurseries.
Most employees using workplace nurseries contribute to their cost. All my researches show that every employee using every workplace nursery contributes. Indeed, in every case I examined I found that the employees paid about the same as those who paid for private child care or for their children to attend council nurseries. They all pay out of their taxed income. The difference is that the Government insist that they should pay tax on the employer's contribution. The Government pretend that workplace nurseries are free. I have shown that that is not so.
I hope that the hon. Member for Devizes will join my hon. Friends and I in the Lobby when we vote on this issue. I told him that I would refer to him during this discussion. He claimed that his proposal on stud farms was necessary because the tax arrangements for stud farms were changed in 1981 as the result of a decision by the Capital Taxes Office. He claimed that that changed the position which had existed since 1933. That is precisely our argument about workplace nurseries; that there was a change in 1983 from the position which had previouslyalways existed. The hon. Member for Devizes told us that the Government stuck to their line about stud farms, but the advocates of change persisted and that led to the introduction of new clause 19. If the Government are as stiff-necked about workplace nurseries, the issue will return year after year in the same way as the stud farm issues for we shall not let it rest.
The nursery tax is the thin end of an even greater wedge. Those whose children attend workplace nurseries will find that they are all taxed. The experience of the Kingsway Children's Centre will be shared by many workplace nurseries.
I have a letter from the private secretary to the Chancellor of the Exchequer. Mr. Roy Grantham, the general secretary of the Association of Professional, Executive, Clerical and Computer Staff, wrote to the Chancellor, but he did not receive a reply from the right hon. Gentleman. I make no complaint about that because I understand the pressure that is on him. Mr. Grantham received a reply from the right hon. Gentleman's private

secretary. We must assume that his private secretary reflects his views when engaged in correspondence on his behalf. The secretary wrote:
Mr. Lawson has asked me to explain that it is this Government's policy that all remuneration, whether in cash or kind, should be equally assessable to tax.
Let us consider the implications of that statement. I challenge the Financial Secretary to deny that the Government are to tax workplace canteens. I ask him to deny that the Inland Revenue and the Government have no plans to tax car parks. Those items are not being taxed now but they are benefits in kind. We are told that the Chancellor has said that it is the Government's policy that all
remuneration, whether in cash or kind, should be equally assessable to tax.
That must mean that we shall find provisions in next year's Finance Bill to enable the Government to levy a tax on the provision of factory canteens and car parks.
I challenge the Minister to deny another paragraph in the letter from the Chancellor's private secretary. Is it the Government's policy to tax everyone who enjoys the benefit of a workplace canteen, a factory car park or a workplace nursery? The Government have said that only those whose income exceeds £18,500 will be taxed, and included in that calculation is the benefit itself of a workplace nursery. The Chancellor's private secretary has told Mr. Grantham that
it was decided to keep the threshold in place for the time being, it was made clear in a reply to a Question in the House of Commons last year that the Government's long-term aim in this field should be the abolition of the threshold.
That must surely mean that the Government will tax all benefits in kind, whatever the income of the employee. That is a new step that shows that the new clause is more important than it may appear at first sight. It is not confined to the interests of 2,000 who are mainly single parents. It is not only their interests that are at stake.
The Association of County Councils has no illusions about the importance of the new clause. It shows in its letter that it recognises the importance of the new clause to family life. This non-political body wrote:
One of the most significant features which has come out of our discussions so far"—
it is referring to its discussions on family policies—
is that organisations which profess support for the maintenance of family life can take decisions which have an indirect, but adverse, effect upon the quality of family life. I am afraid that the Government falls into this category.
Those are the words of the gentleman who wrote on behalf of the association.
The new clause is supported also by the Association of Metropolitan Authorities, the workplace nursery campaign, the Equal Opportunities Commission, the National Council for One Parent Families, the TUC and several individual trade unions. They all recognise that the Government's insistence on taxing the provision of workplace nurseries will be a deterrent to employers who would otherwise set up such nurseries. It is a matter of the interests not simply of those 2,000 people, but of all those other parents who could benefit if employers were persuaded to extend. the provision of workplace nurseries.
By levying this tax for the first time and refusing to allow Parliament to stop this iniquity, the Government are making it unlikely—I put it no higher than that, because I do not want to exaggerate—that any employer will set


up any workplace nurseries. That is the reason why I shall be asking my hon. Friends to join me in the Division Lobby.

Mr. Don Dixon: I support my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis). This year at a women's TUC conference at Torquay the delegates of the General, Municipal, Boilermakers and Allied Trades Union were successful in carrying a motion supporting workplace nurseries, and that idea subsequently became the TUC's policy. My hon. Friend has the support not only of the Equal Opportunities Commission but of millions of trade unionists.
Nursery provision is already inadequate. If the new clause is not accepted, we shall lose almost 70 workplace nurseries, and that will worsen the problem. France, Denmark and the Netherlands made educational and nursery provision for 20 to 30 per cent. of their two-year-olds. Britain makes no provision. Belgium, France and the Netherlands make educational and nursery provision for 95 per cent. of their four-year-olds. Britain provides for only 56 per cent.
A Council of Europe document states:
The Government should realise the importance of pre-school education, both for the individual development of each child and for the general good of society. All children, irrespective of social class, should, by the age of three at the latest, be given the opportunity to attend a pre-school establishment.
That document was signed in 1971 by representatives of the United Kingdom and 16 Council of Europe countries, when the Prime Minister was Secretary of State for Education and Science. Not only has the right hon. Lady not kept up with the position 13 years ago, but she is trying to go back on the Council's proposal.
Between 15 and 20 per cent. of families in the United Kingdom are single-parent families. Over the years, various surveys have shown that the majority of parents with children under five want to work. Almost 50 per cent. of those parents are mothers with children under three, who require nursery places. Without access to decent child-care facilities, parents with children under five cannot get the equal opportunities for which the Equal Opportunities Commission provides. Some parents —usually women—do not return to work after maternity leave, primarily because there are no nursery facilities.
It is no good the House passing legislation giving women at work maternity leave if they can be turned from work because of inadequate facilities. If the new clause is not accepted, the Treasury's decision will worsen matters. The state should provide nursery education for all children under five, as it provides education for those children over five. I hope that, as a first step the House will accept new clause 26.

Mr. Meadowcroft: I wish to support the new clause on behalf of my hon. Friends in the Liberal and Social Democratic parties, whether awake or asleep.
I sometimes find the arguments of Conservative Members suggest that their efforts are characterised by searching around for bits of income for the Treasury that come from the poorest sections of the community. It is sad that in this case they seem to wish to hit hardest those who are trying to fend for themselves. It is strange that the

Government wish to clobber those who wish to take advantage of helpful employers who provide nursery places.
At this time of the morning it is not appropriate to rehearse the importance of nursery care and provision for both children and their parents, particularly mothers. I hope that Conservative Members accept that the provision of nursery education is beneficial to both children and parents. However, some Conservative Members might not accept that, in which case their reasons for opposing the new clause are very different from those of the Financial Secretary.
The Leeds city council summed up the argument succintly in a motion on the issue that it passed in April, when it recognised that the decision of the Inland Revenue
(1) threatens the jobs both of those who work in nurseries and those who use them
(2) challenges the right to work of those who cannot afford other forms of childcare
(3) has serious implications for levels of nursery provision in Leeds".
Not all benefits in kind are taxed. For instance, exceptions are made for canteens, as we have heard, and even for car park provision. The anomalies imposed on us by the tax principles that are enunciated are easy to get round if the Inland Revenue and the Treasury wish to do so.
One anomaly has not yet been pointed out. So far as I know, education authorities which provide nursery schools and education do not as a rule make any charge to the parents for the children who attend those schools. It is an anomaly to say that those who have children attending workplace nurseries should be charged, whereas those children go to nursery schools should not. Those whose children attend day nurseries and have to pay for child minders sometimes have the fees remitted or paid by social services departments.

Mr. Barron: The hon. Gentleman referred to paying for nursery education provided, presumably, by local education authorities. Does he believe in paying for education or does he believe that people should have it as of right?

Mr. Meadowcroft: The hon. Gentleman obviously was not listening. I said that, rightly, when local education authorities provide nursery schools, they do not make a charge to the parents. If the Treasury and Inland Revenue are to be consistent, they should levy a tax on the concessions that those parents have, but they would not dare to try. That is my point.

Mr. Jeremy Corbyn: Does the hon. Gentleman believe that nursery provision should be free or that it should be charged for? The House needs to know what the alliance thinks about the matter.

Mr. Meadowcroft: What the hon. Gentleman says is ludicrous. Of course, nursery provision should be free. I am pointing out the anomaly that if the Treasury is trying to claw back tax from those who have the facility in workplace nurseries, why does it not try to claw back the part of nursery school provision put in by the local education authorities? It is an anomaly. Of course, the provision is necessary, not least because otherwise there would be discrimination against women in particular. That is the whole point.
If the Government argued against the new clause on the ground of an anomaly, no doubt those who support it would be prepared to withdraw it if the Government undertook to assist all those who sought nursery provision.
The hon. Member for Croydon, South (Sir W. Clark), who is temporarily absent, made a helpful intervention when he drew attention to the reason why luncheon vouchers were not taxed. If the same principle were applied to nursery provision, those unable to take advantage of workplace nurseries should have nursery vouchers. If the hon. Gentleman actually believes that, perhaps he will pursue the idea on some future occasion. If the Government will not accept the new clause, it must mean that they oppose the whole principle of workplace nursery facilities.
On purely fiscal grounds, the balance of the argument lies with the Government, especially as the poorer parents are more likely to have to use other types of nursery provision, but it is far less likely that wider help for parents with young children will be forthcoming if the new clause is rejected rather than used as a lever to help others. If the Government oppose the new clause on the ground that an anomaly needs to be ironed out, they should iron out the anomaly by being more generous rather than meaner.
We are not talking about rich people. As the hon. Member for Birmingham, Hodge Hill (Mr. Davis) pointed out, £8,500 is nothing like so generous as it looks. Taking into account the proportion provided by the employer, the point at which the tax would be charged is below the national average wage. That is ludicrous.

Mr. Harry Cohen: Is the hon. Gentleman aware that that figure has not been uprated since 1979, the year when the Conservatives came to power, and that, if it had been uprated, it would now be about £15,000?

Mr. Meadowcroft: The hon. Gentleman anticipates my next comment. If the Financial Secretary wishes to stick by his current interpretation of the regulations, he should at least tell us why the £8,500 has not been indexed and has not been increased since 1979. The employer's contribution has been indexed to take account of inflation. Therefore, why are the income levels of those taking advantage of the provision not dealt with on the same basis?
We believe that until we find a fairer way to help those who need nursery provision, it is important to accept the new clause.

Mr. Neil Hamilton: The hon. Member for Birmingham, Hodge Hill (Mr. Davis) is usually a model of politeness and it was a pleasure to debate with him in the Standing Committee, which on the whole was very good-humoured despite the length of time for which it sat. I am sorry, therefore, that he chose to cast aspersions on the number of times that I took part in the Committee's proceedings. The Committee established two records. The first was the length of time for which it sat. The second, I believe, was the record for the least effective Opposition. Garrulity and length of speeches must not be confused with achievement and it may be interesting in times to come to compare my effectiveness in helping to secure concessions from the Government with that of the Opposition. I am about to depart from my usual practice recently, and make a speech which will, I hope, be helpful to the Government. If that is a novelty, I make no apology for it.
5 am
I am opposed to the new clause calling for nurseries to be provided and paid for by employers as a tax-free benefit in kind. the Budget has been castigated by the Opposition as a Budget for the better-off. In his remarks on the new clause dealing with stud farms, the hon. Member for Workington (Mr. Campbell-Savours)—who, I am sure, is only temporarily absent— said that the new clause showed how the Government were working in the interests of the few. It is therefore ironic that new clause No. 26 conforms to the criteria which the Opposition attacked in Committee and have attacked tonight. If the clause were added to the Bill the only beneficiaries would be directors or higher-paid employees under the definition in the statute — the very people against whom so many strictures were levelled when we discussed extra- statutory concessions.
The hon. Member for Hodge Hill dragged a number of red herrings across the Floor of the House when he attempted to find analogies with other kinds of employer-provided benefits, as he chose to call them. He brought in the hoary question of car parks. When I was at the Bar I was involved in a case in which the Inland Revenue attempted to tax a benefit in kind of the type that the hon. Gentleman mentioned. It was not the kind of benefit that I mentioned in my intervention, where an employer might pay for an employee to use a National Car Park. That would be a taxable emolument which, if it was declared on the tax form as it ought to be, would be taxed accordingly.
Let us take the more difficult case of a car park of the kind that the hon. Gentleman mentioned—perhaps a car parking space at the Foreign Office—

Mr. Mikardo: Or in this House.

Mr. Hamilton: Indeed. In section 62(3) of the Finance Act 1976 there is a specific exemption for
provision for the employee, in premises occupied by the employer or others providing it, of accommodation, supplies or services used by the employee solely in performing the duties of his employment.
No one would quarrel with the non-taxability of some service provided for an employee to use solely in the course of his employment, but there is a further point which is relevant — the question of the value of the benefit provided. What is the cost to the Foreign Office of the provision of a car parking space — a space in an asphalt-covered area? That is the test applied in the general provisions about benefits in kind under schedule E of the tax code. In the vast majority of cases, the cost to the employer of providing that benefit is nil, or as near nil as one can imagine. In the example I have given, it would amount to a portion of the rates on a space measuring 6 ft by 10 ft—an amount of money so small that it is not worth collecting. That is why the Revenue does not assess such services as benefits in kind. However, where the value of the service is sufficient to make it worth collecting, it is assessed by the Revenue—assuming that it is declared in the first place. The hon. Gentleman's example does not prove his case. It proves the opposite.

Mr. Mikardo: What about someone who builds a new facility and who gets a site, of which he needs 1·5 acres for his works and one acre for the car park? The cost to that employer is the capital value of the extra one acre that he must buy to provide a car park, as well as the rates.

Mr. Hamilton: If he purchased the site specifically to provide a car park and the car park was not an incidental benefit, it is possible to construct an argument to the effect that that would be a taxable emolument. I want to relate the analogy of the car park to the cost of providing a nursery facility on the premises of an employer. In Standing Committee, we debated this matter at a more sensible hour and the hon. Member for Hodge Hill said, I believe, that the cost to the employer of the Kingsway nursery was £230 per child. I wonder whether that figure takes account of a notional rental value for the area of office space that is used for nursery facilities. I should be surprised if it did. It could be argued, for example, that the cost of the notional rental of a car parking space should be included in the calculation.

Mr. Terry Davis: The current cost is more than £300 and I believe that that includes the cost of the premises.

Mr. Hamilton: I should be surprised if it included a notional rental value. It might conceivably include a portion of rates, although I should be surprised if it did also. However, it might not be taxable as an emolument if it is merely incidental to the provision of office facilities.
I should like to return to the potential beneficiaries of new clause 26. Hon. Members might be aware that, immediately before coming here, I was employed by the Institute of Directors. To judge from the animated buzz from those who are awake, hon. Members might be aware of it. I am sure that I could provide application forms for membership for those who are eligible. It is an enlightened employer. I took a cut in pay to come here to perform this public service at this time in the morning. The institute believed in paying well to attract the highest possible calibre of staff—a very sensible policy. It also provided good fringe benefits. We had luncheon vouchers, for example, which I regularly exchanged for an ice cream on my way home from work.

Mr. Corbyn: I can see that the hon. Gentleman is a rather sad victim of the free market economy. Does he believe that the provision of nurseries has any place in the Valhalla of the free market economy that he is describing?

Mr. Hamilton: That is something for individuals to decide for themselves in a free market rather than something to be imposed on them by the tax system or the state.

Mr. John Golding: Does the hon. Gentleman realise that we are talking about people who, when they get luncheon vouchers, spend them on their dinner rather than on an ice cream on their way home?

Mr. Hamilton: I was merely drawing attention to the inefficiency of that method remuneration which spreads the benefit to people who do not need it and therefore imposes a burden on the rest of the tax system and other taxpayers. I am grateful to the hon. Gentleman for making the argument that I am about to advance. The same argument would apply if the Institute of Directors provided nursery facilities for its employees. In fact, the Institute of Directors does not provide such facilities, but I would be surprised if the hon. Member for Hodge Hill had in mind the kind of individuals who are employed by the Institute of Directors or other such organisations. Having earned the sort of salary that I earned before I came into the House, I would be surprised if such employees of the

Institute of Directors were intended to be the beneficiaries of the kind of tax concession that the hon. Gentleman proposes.
I reiterate the point that I made in reply to the hon. Member for Newcastle-under-Lyme (Mr. Golding). This is an inefficient way of providing benefits through the tax system. If the proposal were agreed to, directors throughout the United Kingdom would be the beneficiaries of this system. This would include such gentlemen as Mr. Tucker and Mr. Plummer whose names have been mentioned frequently in the course of our discussion, and the company Rossminster. I would be surprised to discover that those two gentlemen who have occupied a high position in the Socialist valhalla were intended to be the beneficiaries of the legislation.
Other individuals would be equally undeserving of benefit, for example, Members of the House. I am not sure whether it was the hon. Member for Peckham (Ms. Harman) or one of her predecessors who proposed that there should be a creche for the children of Members of Parliament. It might be a good idea if the House had nursery facilities. However, I hope that it would not be restricted to individuals in the building under the age of five, because certain childish Opposition Members would benefit from being put in it.
It has been claimed that the purpose of the clause is to make it easier for certain taxpayers to get or keep jobs. However, the same arguments could apply to a tax concession to put aged parents in private old people's homes, to justify a concession for the payment of cleaners or cooks and to take away some of the domestic chores which women—and not only women—would otherwise have to perform and which would make it more difficult to go out to work. For those who have to work nights, there would be the provision of baby sitters. The same argument could be used for the provision of cars to cut down the waiting time at bus stops. There is no end to the arguments that could be put forward based on the Opposition arguments.
The provision of benefits in kind is generally an inefficient way of rewarding employees or workers because it distorts the pattern of choice of which employees might otherwise avail themselves, and brings forth the kind of anomalies that we have been discussing. The case of a works canteen has been mentioned, and it is worth remembering the origin of that concession. It was introduced in 1948 in a period of food shortages in an attempt to ensure that employees managed to get a decent meal in the middle of the day or whatever time they were working. The House is now debating economic and social conditions quite different from those of earlier days.
It would be interesting to know whether the value of unemployment benefits today is greater than the average wage of those who were in work in 1948. Whatever the economic and social difficulties today, they are obviously nothing compared with the position 30 years ago. The changes in the tax system should reflect the changes in society.
However, I agree that there may be a case for raising the £8,500 figure, if one is to retain the distinction. There is a case for indexation, otherwise there will be the ridiculous position of people being taxed as higher paid employees when they are earning less than the average wage.

Mr. Mikardo: That can happen now.

Mr. Hamilton: I accept that. This is particularly so because in the calculation of that £8,500 figure one has to include gross payments to the employee. This is a particular complaint of commercial travellers, because the sums that they receive by way of reimbursement for petrol used in their work is added to their income and grossed up for the calculation of this benefit. Many people are being taxed as higher paid employees who are not that by any stretch of the imagination. I hope that at some stage the Government, if they are to retain this distinction, will consider uprating the figure.
I also have some sympathy with what the hon. Member for Hodge Hill was saying about the back tax being levied on those who had thought that no tax would be levied in these circumstances. I am not saying that, simply because people were wrongly advised, there should, threfore, not be any liability. For the Inland Revenue to go back six years, over which it has not sought to levy the tax, would be wrong. In many instances, the tax has not been levied because the tax has not been declared. In those circumstances, the strictures that the hon. Gentleman was making against the Government and the Inland Revenue are rather unfair. For those reasons, which I hope are cogent, I trust that the House will reject this clause in the interests not just of fiscal nuetrality but in the interests of removing anomalies from the tax system and leaving choice with the individual.

Mr. Eric Deakins: I have three comments to make on the speech of the hon. Member for Tatton (Mr. Hamilton). First, no self-respecting director would turn down the opportunity to have his children looked after by a nanny if he could afford it. He would never take his young children to work where they might be contaminated by mixing with children from different social classes.
Secondly, on employees, while it is true that what is being proposed by the Inland Revenue directly affects higher paid employees, it could lead to the withdrawal of nurseries, and that will affect all employees, not merely those who are to be taxed because of this new ruling.
Thirdly, on car parking, I point out to the hon. Gentleman, who must know something about economics, that it is not just the cost of providing car parking space that must be taken into account. As is the case with the Foreign Office, the opportunity cost must also be taken into consideration. If the Foreign Office were to let out its car parking space to National Car Parks, or some such organisation, it would make a small fortune, which would help the Government's finances.
This ruling is a retrograde step. There are few workplace nurseries, as we heard from my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis). The issue is one of principle, not of size—helping women, and men, with young children, who wish to and can work with the help of facilities provided by the employers. This should be encouraged. We should be looking to more and more employers to provide such facilities, as they do in other countries not all of them Socialist. We should have such facilities here as well.
The hon. Member for Tatton may not know that many mothers cannot seek work, either because they cannot afford the facilities that are available to them, or because facilities, such as local authority nursery provision, are not available where they live. Even where such facilities do

exist locally, they will be under increasing financial pressure from public expenditure cuts and the Government's rate-capping measures. Those who are taking advantage of such nurseries at the moment will not necessarily be able to rely on them in future.
I believe that nursery provision in many parts of the country, including my area of Waltham Forest and Walthamstow, is riot as good as it ought to be, and it is likely to get worse. That is why we should examine seriously the Government's attack on workplace nurseries. Basically, that attack is part of Government policy—enunciated on a number of occasions by the Prime Minister —to drive women back into the home. It is a measure, if you like, to ensure that workplace nursery provision is deterred. No one has claimed that the measure will raise revenue. Indeed, that would be ludicrous as so few workplace nurseries are involved.
The Government clearly regard the measure as a matter of principle, which most people who believe in sexual equality find retrograde. It is typical of the Government's sexist and reactionary attitude to women, and for that reason I believe that it should be opposed.

Mr. Golding: This is one of those rare occasions on which my hon. Friend the Member for Great Grimsby (Mr. Mitchell)—who is not speaking yet—has urged us to be brief. I take the hint.
There is a particular problem in London for those who want to work. The economies of the Kingsway Children's Centre are very straightforward for those who are using it. They could be on national rates of pay, as low as £4,740 a year, and still be caught if the London allowance is taken into account. There are additional costs of accommodation and travel to be taken into account. The new clause deals not with directors and the higher paid, but with those who are struggling to bring up a family. We are not dealing with those who use their luncheon vouchers to buy ice lollies on the way back to work, probably after enjoying a good expense account lunch.
When the hon. Member for Tatton (Mr. Hamilton) spoke, I thought that the Minister probably wished that he was attacking rather than supporting the Government. His contribution clearly showed that the debate is about the two Britains: those who have to struggle to make ends meet to bring up their families, and those who, like the hon. Gentleman, can afford to be supercilious in those circumstances.

Mr. Neil Hamilton: The hon. Member for Newcastle-under-Lyme (Mr. Golding) is completely wrong. I was trying to show that this is an inefficient way of providing tax concessions for the income groups for which he is speaking so eloquently. I was attempting, perhaps not very efficiently, to put across the point that, if we are to help that income group, a far better way of achieving our objective is to raise the £8,500 threshold and not to disburse the benefits among undeserving individuals, such as myself, who would not qualify for the tax concession on the basis of income.

Mr. Golding: My hon. Friend the Member for Walthamstow (Mr. Deakins) has answered that point. There is no way in which the hon. Gentleman will put a child in the back of his smart car and take him or her to work. It would never cross his mind. He only thought


about that point when he had risen to speak. If he had thought about it before, that is a disgrace. He first uttered the words in the Chamber.
I can understand why the hon. Member for Dorset, South (Viscount Cranborne) has taken his hands away from his ears and raised his head for the first time. He covered his ears when the right hon. Member for Tatton was speaking. We should have put our hands over our ears, just like the hon. Member for Dorset, South.

Mr. Meadowcroft: I enjoyed it.

Mr. Golding: The hon. Gentleman enjoyed it because it was so out of place in the context of the debate.
We are debating whether women should go to work. I do not rest my argument on the basis of the single-parent woman who needs to go to work, nor on those who must help support unemployed husbands or those whose pay is inadequate to support a family. Those examples powerfully reinforce the argument, but we should not rest our case upon them. We should base our argument on the simple proposition that women have a right to work.
If the jobs that they want—perhaps the only jobs available to them — are in places such as central London, there should be nursery facilities. The one big advantage of having nurseries in close proximity to workplaces is that women prefer to be physically near their children while they are at work. Many women in London, who must travel considerable distances to work, are more content if they are within a few hundred yards or half a mile of their children than if they are 15 miles away. The Government are making that more difficult. In fact, they are creating a psychological and economic framework in which it is impossible for women to take those jobs. That we must condemn, because these women are entitled to work. Among the many reasons why that is so is the fact that women are able to live fuller lives by working.
The Government ought not to stop these nurseries in this way. I do not apologise for saying that it is absolutely essential to give all our children pre-nursery education. Some years ago I took an interest in the formation of language in children. It is clear that their language is formed by the age of five. It is also clear that the way in which they think—logically or otherwise—is determined by the age of five. In fact, our children have gone a long way along the educational path before they go to school. That is the irony. Inequalities in education are determined more between the ages of one and five than between the age of five and school leaving age.
There are very good reasons why nursery education should be provided for all. In an outstanding speech, my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) pointed out that the £8,500 limit did not preclude people on very low incomes being hit in the future. That is bound to happen, given the rise in inflation and the £8,500 peg. The answer does not lie in raising the £8,500 limit. In certain circumstances it might be right to cut for everyone the perk attaching to loans and mortgages. But it is certainly not right that those on lower incomes should have to pay tax because they need to put their children into nursery schools so that they can go to work. With the rise in inflation, more and more people will be hit.
My hon. Friend the Member for Great Grimsby is determined to terrorise me into making a brief speech. I am known for my moderation and sensitivity, and for my

fear of Whips. However, I believe that this subject is very important. As has been said, it will not go away. I congratulate all those who have campaigned so far, and assure them that we shall campaign very hard indeed, because this provision affects the family life of many people.

Mr. Sedgemore: I rise to support the new clause. For all its modesty, it will—if passed—facilitate important social and economic change. In seeking to get this pernicious tax on women and babies withdrawn, we faced several difficulties. One was that it was impossible for members of the Committee to decide whether the background briefing material that we had was defective, or whether the Financial Secretary to the Treasury was seriously misleading the Committee. I believe that I can demonstrate later that the Committee was seriously misled, so the only question to arise is whether we were misled deliberately or inadvertently. I must ask the Minister to address his mind to that serious challenge.
The second difficulty was that all the reports of our Committee proceedings that I read were done by journalists who were not present when we debated this subject. That is a shame. I look up at the Press Gallery and I do not see members of the Lobby there, although they are fond of criticising hon. Members for not attending debates. However, at 5.30 this morning there are plenty of hon. Members here. In Committee we sat for 155 hours and barely saw a Lobby correspondent. We rang up Annie's Bar and drew maps and diagrams showing how to get from the Press Gallery Bar to the Committee Room, but they did not come. In particular, no one came from The Guardian.  That might explain why, two days after we debated this issue in Committee, Mr. Stephen Cook wrote an article in which he got all his facts wrong. Most alarming of all, he said that the Financial Secretary and the Government had not made up their minds whether they would support this amendment.
I was present throughout that Committee sitting and have a copy of Hansard with me. The Financial Secretary poured scorn on the amendment, and in his very last sentence invited the whole Committee to "throw it out". How could Mr. Stephen Cook then produce a report in a national newspaper saying that the Government had not made up their minds? Such disgraceful journalism has caused considerable embarrassment to those of us who have been trying to explain events in Committee to the outside world.
When I first rose to speak in Committee, I argued—and I thought that it was a valid argument, although I am not now so sure—that this tax was a mean and stingy measure imposed by the Board of Inland Revenue and by administrative fiat with the consent of the Conservative Government. The Financial Secretary rose and effectively sought to refute the argument that I and other Labour Members had put.
I hope that I can summarise the Financial Secretary's argument fairly. He told the Committee that perks had been taxed since 1948 and that significant changes had been made in the law in 1976, when the £8,500 limit was set. He said that a tax on nurseries had been imposed by a Labour Government and had been collected.
The Minister gave me and other Committee members the impression that the tax had been collected from workplace nurseries since they first existed. As my hon.


Friend the Member for Birmingham, Hodge Hill (Mr. Davis) said, it is certain that what the Financial Secretary told us was not true. Were his words untrue because he did not know what was happening or because he was misleading the Committee?
Two people who are helping me have contacted no fewer than 84 workplace nurseries since the issue was debated in Committee. They contacted almost every workplace nursery in the country. By talking to the people who run the nurseries and to the parents who send their children to them, they discovered that not one person has paid the tax. How is it that the Financial Secretary claims that the tax was imposed by a Labour Government, that there has been no change in the law, that the tax has been collected and that no administrative or judicial decision has been made at the last moment? His claim does not fit the information given by the 84 nurseries contacted on my behalf. If we were misled in Committee I am sure that it was not deliberate. If it had been, the Financial Secretary would have had to resign.
I have been caused an enormous amount of embarrassment. My sitting room is supposed to be a place of peace, grace and charm. Yesterday morning one of the campaigners, Sue Finch, turned up with a colleague. She insisted that the Financial Secretary had told the Committee a pack of lies. I told her that the Financial Secretary did not lie, would have no reason to lie and that if he did lie he would have to resign. I told her that basically he was a decent person, except that he was a Tory.
When I defend the Financial Secretary like that I am open to criticism. It seems that I am the enemy. It is not right that I should get an earful of verbal GBH from a constituent because I defend a Tory Financial Secretary. He must explain what he meant.
Sue Finch had seen Hansard and she told me to examine it to discover exactly what the Financial Secretary said. She said that almost every sentence was ambiguous. When I examined Hansard I discovered that she was right.
Replying to questions from my hon. Friend the Member for Hodge Hill and myself the Financial Secretary said that the Government would lose £1 million if our proposals were adopted. It requires only a little inversion to change that to the Government collecting £1 million. It is clear that the Government are not doing that because they are collecting nothing from 84 of the nurseries.
The Financial Secretary said that fewer than 2,000 people pay the tax. How many fewer than 2,000? If 1,000 or 1,500 people pay the tax he would be justified in his view that our briefing was wrong, because the tax had been imposed by a Labour Government and collected regularly. If only 50 or 100 people pay the tax we are justified in claiming that we were misled and that the tax is new. Claiming that the law has always enabled the Revenue to collect a tax is different from saying that it started to collect it only in the past 18 months. That means that the tax was imposed recently by administrative fiat, for reasons which the Financial Secretary must explain. I defended him in my home. He must now defend me or apologise to the House for his address to the Committee.
The hon. Member for Tatton (Mr. Hamilton)—the director from Berlin—said that only the better-off would benefit from the proposal. Children of people with a wide variety of incomes attend a workplace nursery in Hackney called the Mary Woollstonecroft nursery in Hoxton square. It is odd that the local authority financial directors

who earn thousands of pounds knew nothing about the tax, which has been regularly collected since 1966. No one there pays tax—I checked on it. The Hackney borough council finances every place in the nursery to the tune of £3,640 per annum. With the £8,500 cut-off, it means that everyone who earns more than £4,860 pays tax. That is greatly below the national average wage. If the new clause is not agreed to, 90 per cent. of parents at that nursery will each pay £1,213 tax a year, which is £23 a week. Al the moment they pay £17·40. That means they will pay a total of £40·40. People who earn £4,860 a year cannot afford to pay that. Even the director of Berlin with his mental blockage, will understand that.
The Government are making a mammoth attack on the concept of workplace nurseries. As I said in Committee, at best it is shabby and chauvinist, and at worst it is vindictive. It is an exercise in Victorian values designed to prevent women from expressing themselves and developing their power and influence.
I regret that much of this issue has turned on the Kingsway nursery because it has put the matter out of focus. The Hackney nursery, where some of the parents are single-parent families, is radically different from the Kingsway nursery. I have a delightful letter from a typist called Oona Sugrue who works for NALGO and sends her daughter to the Kingsway nursery. She thanked me for supporting the nursery and said that she sent her 15-month old daughter to the nursery. She admitted to being on the bottom end of the scale at NALGO and that the children of the fifth largest earner at NALGO also attend the nursery. She hastened to acid, in view of an aside I made in Committee, that she was not a middle-class Tory.
Finally, according to the New Statesman scores of hon. Members will vote with the Opposition tonight. I had to tell Sue Finch, when I was defending the Financial Secretary, that that is nonsense. If we get the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) into the Lobby, he will be about the only one. Where journalists get hold of such rubbish I do not know.
The central argument in the New Statesman was that the Government might be defeated because there would not be a number of Labour Members here, and they would get massive support from Conservative Members. We know that that is nonsense. Therefore my remarks are not even addressed to the Financial Secretary. They are addressed to my hon. Friend the Member for Hodge Hill (Mr. Davis), because when he replies to the debate we want a categoric assurance, on behalf of the shadow Cabinet and with all the authority of the Leader of the Labour party, that when we are returned to power we will abolish this tax We do not want a "Solomon binding" commitment, but a pledge that will be carried out.
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I say to the Government, but without much hope, that one would think that in memory of Mary Woolestonecroft, Selina Cooper, Emily Pankhurst and even little Oona Sugrue, they would accept this modest new clause as a token of their respect for all those who fought hard in the feminist movement.

Ms. Jo Richardson: I am not replying to the debate—my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) will do that — nor am I a member of the shadow Cabinet, but I am a member of the


national executive committee of the Labour party. I can say that the national executive would certainly be against the Government's proposal.
Since just before March not only the parents at the Kingsway Children's Centre—I accept what my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) said about it being regrettable that publicity has centred on that workplace nursery—who have been directly and immediately affected, but many thousands of people, mainly women, are living in fear of what may happen. If the Government do not give way and correct what should have been put right many years ago, those parents will be in a tax bracket similar to the one in which the parents at the Kingsway Children's Centre have found themselves. The latter may have to pay extra tax of about £20 a week. The House should not forget, although some people have ignored it, that the parents already pay to send their children there. If we do not persuade the Government to accept the new clause, they will have to pay even more and they will also have to pay the back tax. That will ruin—there is no other word for it—many families. Who among our constituents—I am not talking about people in the higher tax brackets—could lay their hands on about £3,000 in back tax, even if the payments were spread? It is impossible, and it is something that is completely unbudgetable.
The Minister will recall the meeting we had in his office on 12 April, together with my hon. Friends the Members for Holborn and St. Pancras (Mr. Dobson) and for Cumbernauld and Kilsyth (Mr. Hogg). As we walked back from the Treasury after the meeting, we believed that the Minister had not taken the point that we had tried to make. In the letter that he sent to me after the meeting—it had been fairly widely circularised to different organisations and used in one form or another—he did not seem to seize the point that disadvantage would be caused not only to these parents but to others. He did not see it then. I only hope that he is beginning to see it now, particularly after the powerful speeches made tonight by my hon. Friends.
There has been great confusion about this whole issue. There was a generally held belief that such provision was not taxable. I do not knock the Equal Opportunities Commission when I say that it did not know that it was taxable. Indeed, in its documents about establishing workplace nurseries it said that they were not taxable. As my hon. Friend the Member for Hodge Hill said, Which? got it wrong in its tax guide. One would expect such publications to be checked by the Treasury . Are they? If not, and if they can be faulty, who knows how similar tax guides could be misleading people? Will the Minister say whether those documents were seen and read?
There has also been confusion about whether a large number of taxpayers are affected. In fact, only a small number are involved. Indeed, I wish that virtually everybody came into it in the sense that we had far more nursery provision than exists today.
I agree with the comments of my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) about the provision of nurseries near to the place of work. On the other hand, we should also think—we in the Labour party are giving much thought to this—about the greater provision of nurseries and cr é ches nearer home. I mean not child minders, but local authority nurseries. In some cases it is more convenient for mothers to leave their

children near home and to pick them up again from that point later, particularly if they have some distance to travel. In other words, both types of nursery have an important part to play.
The attack by the Inland Revenue affects only a small number of taxpayers and their children. The figure of up to 2,000 children has been mentioned. However great the cost for parents, in Revenue terms it is peanuts. It is not worth collecting. The awful fact is that if the Government insist on collecting it, the nurseries will probably close, and then the Government will no longer be able to collect the tax from those parents, because they will not have nurseries into which to place their children.
I have been concerned with workplace nursery and other campaigns and I am aware of the confusion that has been caused by the belief by many people that this service is free. It must be emphasised that those—the people who are now to be taxed—who place their children in these nurseries pay for the facility, and in most cases they pay at least as much as they would pay for child minding facilities at home, which are not always as adequate as nursery provision.
As other hon. Members have said, the exacting of this tax has wide social implications. The unwillingness of the Government to rectify the position confirms our belief that they are continuing with policies which will drive women back into the home. It is true that some fathers take their children to nurseries, but, by and large, it is the women who use and need them. I wish that there were more shared responsibility in two-parent families and that more fathers got their children up and took them to a nursery. Some do, but most do not. Women who work have the prime responsibility of coping with their children. When both parents work, it is normally the woman who has to arrange for child care, for the baby sitter, for baby minding and to get the kids to the nursery before she starts her paid job each day.
A number of my hon. Friends have talked about one-parent families. The majority are women, and many of them are in low-paid jobs. however, when the employer's contribution is added, many women in low-paid jobs find that they are over the £8,500 threshold and into the taxable category. Women need this provision. We should not penalise their chances of employment. There are already enough obstacles in the way of women getting employment, including poor training opportunities, and now we are adding the insurmountable obstacle of causing them to pay the full cost of nursery places.
It is strange that this saga developed at almost the same period as discussions on the Matrimonial and Family Proceedings Bill, which was in Committee from March until a few weeks ago. One of the main aims of the Bill was said to be the need to make first wives economically independent, to encourage them to stand on their own feet, to get a job, to be able to fund their children's attendance at a nursery and therefore not to be a "drain upon their ex-husbands". The Bill passed through the other place and through its various stages in this place. The difficulties facing divorced women with children were raised in many debates and Members asked how they were to find training and employment and to cope with the lack of child-care facilities in their own areas or at their places of work.
I recall in one such debate the Solicitor-General trying vainly, at least for me, to reassure us that when the courts were determining maintenance they would have to consider what facilities were available for employment


and child care in the area where the divorced woman lived or worked. The Government cannot have it both ways. They cannot have a piece of legislation which suggests that women should become independent and stand on their own two feet—I wish that the state would make available the provision that would enable them to do so—and seek to withdraw the provisions that are available, in part by taxing them out of existence. They are presenting an image that they want women to match, yet they are making sure that they cannot achieve it.
Much has been said about women's needs and the value to women and parents of workplace nurseries. Some reference has been made to the value to children of workplace nurseries, which is an important topic. I am sure that some hon. Members in the Chamber will recall that during the second world war, most men left their factories and went off to the war and women took their places in the factories. Nursery facilities were provided almost immediately. Children had the company of other kids and were looked after with expert help. No child seemed to be harmed by that experience. Some of those children are now aged between 45 and 55, and they are moaning about the children of today not being like they were. Many of those people spent part of their day in a workplace nursery, and that facility was of value to them.
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By not accepting the new clause, the Government are withdrawing a valuable asset not only from women workers but from the children of those workers who have been using workplace nurseries and could do so in future. A small number of parents are able to do a job and a small number of children use those nurseries. The Government are jeopardising the future of those parents and children by their skinflint attitude. There is no other word to describe the position. The Government are squeezing pennies out of men and women with children in workplace nurseries. I hope that the Government will think seriously about their actions. As my hon. Friends have said, the problem will not go away. If we fail this time—I hope that we shall not—we shall return to the matter on every conceivable occasion, until we get the Government to see sense and change the legislation.

Mr. Cohen: The Opposition have made an excellent exposition of the case, and I shall try not to repeat some of the points that have been made. This is the Government's kindergarten tax on working mothers, and it must be opposed. The main purpose of a tax is to raise revenue, but the method of raising the tax and the exemptions from it have always been used by the Government of the day to encourage measures which they believe are socially, politically or economically desirable. There have been many examples of the regular use of tax perks, loopholes, legal avoidance schemes, which we discussed earlier, and benefits for investors, shareholders, directors and employers, which the Tories have encouraged. The Government's attitude to working mothers and workplace nurseries is a different story. The nurseries are seen as an unjustified perk, but they are necessary for working mothers and those on low incomes.
It has been clearly said that all the organisations concerned with workplace nurseries are opposed to the tax that the Government support. The Tory chairman of the Equal Opportunities Commission and the Tory

Association of County Councils are opposed to that tax, and my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) quoted their statements.
On 2 May 1984 I wrote to the Chancellor of the Exchequer calling for the exemption of workplace nurseries. On 8 June he replied, saying that he would support the tax. Many of his arguments have been cruelly exposed by my hon. Friends. The Chancellor made it clear in his reply on 8 June that canteens are an anomly in the legislation, and I am sure that he will return to that issue later, and impose a tax on them. However, the argument is still there, If canteens, work recreation grounds and social clubs are exempt under the Finance Act 1976, nurseries should be as well. The only argument that the Chancellor was able to put in his letter was that all benefit in kind should be taxed. As I said earlier, there are always exemptions for what are considered socially desirable welfare provisions. This is one. The right hon. Gentleman cannot use the loss of tax revenue as an argument because it is a pittance—the numbers involved are small. As the Inland Revenue's ruling bites, nurseries will close, staff will be sacked and many of the women workers in the nurseries will be thrown onto the dole queue, and parents will be forced to leave their jobs. As a result less tax will be collected overall.
Therefore, such tax exemptions should be extended to encourage employers to expand provision of workplace nurseries. That would be private provision, which is what the Tories are supposed to support. There would be less pressure on public provision—on local authorities that are suffering from cuts in any case. The Government are supposed to support that line.
My hon. Friend the Member for Hodge Hill gave examples of benefits in kind that are exempt at the moment, but if the Government's logic is followed through, they will be taxable. An example that has not been mentioned yet is employer's contributions to the pension funds of their employees. If the logic of the Government's argument is followed through, that benefit in kind will also become taxable. It is another thing that is at risk.
It is ludicrous that the provision of a parking space is regarded as a welfare provision and so is not taxable, but a nursery place is not, so it is taxable. That is a prime example of the upside-down, reactionary values of the Government. Women are the worst affected, particularly working women with children. They do not get equal employment opportunities. Workplace nurseries help the small numbers involved in a small way, but the Government are trying to tax them out of existence. In a way, they are sniping at the maternity leave arrangements because working mothers will find it impossible to return to work. It is also cynical sexual discrimination. The Government do not care a fig about working women. They are forcing them out of work; they think that they are less likely to go on the unemployment register.
I make it clear that I support uniform nursery provision for all under-fives as of right, if their parents want it. I argued that at the last general election and shall argue it at all he elections that I fight. Tax arrangements and fiscal policy can be used for the social good. Workplace nurseries are a social good in this context and should encouraged. There should be a tax exemption for them. I support the new clause.

Mr. Jeremy Corbyn: I shall be brief because many of the points have been ably made by my hon. Friends. It is ludicrous that at this time of the morning we should be debating a proposal so disgusting as a tax on nurseries which is, in effect, a tax on children. We should be discussing not whether the Government should accept a very basic and reasonable new clause but the need for free nursery provision for all children, to be provided either by local authorities or at the workplace. Once more,we are attempting to defend something that should never have been attacked.
It is clear that the Government are simply trying to drive women back into the home, as women are usually responsible for child care. If the tax goes through many nurseries will be closed and the possibility of others developing will disappear. Other countries provide far better pre-school facilities which are not taxed and for which parents do not have to pay. The Soviet Union makes far greater nursery provision than this country, as do many other countries in both eastern and western Europe, including West Germany. The Government, however, prefer to ignore that and to push through this sordid little manoeuvre which attacks women for having children and for being largely responsible for looking after them.
Many parents who use the Kingsway day nursery and other day nurseries are constituents of mine. I have received a letter written by Ms. Judy M. Barker on behalf of the Parents User Group of the Polytechnic of North London Carlton Grange day nursery. It states:
Workplace nurseries are not taxable perks like company cars, but are an essential means of enabling people, particularly women, to work. Benefits which help to meet socially desirable welfare provisions, such as workplace canteens or occupational pensions, are exempt from tax by law. Workplace nurseries should be looked upon in a similar way. In that they enable people to work, they are similar to the tax free allowances for the second homes of MP's which have just been agreed in the committee stage of the Finance Bill.
The immediate effect of such a tax on workplace nurseries such as the Kingsway Nursery in London will be disastrous, as many parents, unable to afford up to a 65 per cent. rise in fees, will have to leave the nursery and possibly lose their job, whilst the nursery itself will eventually be forced to close, with the loss of further jobs. It will be the end of practical help with childcare from the employer, which has been a major plank in the programmes of employers implementing an equal opportunities policy.
There is thus a great deal more at stake than the miserable pittance that the Government are trying to get out of taxation. It is a reversal of the whole equal opportunities programme that many progressive employers have been forced by trade unions to adopt. It is yet another attack on the right of working women and of working people in general to have their children looked after safely and cheaply in day nurseries.
I strongly believe that the new clause should be accepted and that there should be a major debate on the need for nursery provision. I have some experience of this, having been a NUPE organiser before becoming a Member of Parliament, having organised nursery workers, who are often very badly exploited themselves, and having dealt with the problems of nurseries and creches and the fees charged for them. As many people know — the hon. Member for Twickenham (Mr. Jessel) may even wake up and join us, although I doubt it—many nurseries charge extremely high fees. When Barnet general hospital in the constituency adjacent to that of the Prime Minister decided to increase the fees for its creche, I was told that this was necessary to cover the economic costs, but the increase

was so great that if part-time domestic workers in the hospital had placed their children in the nursery they would have received a bill rather than a wage packet at the end of the week because their entire weekly wage was less than the fee charged for the day nursery.
We must show a sense of proportion here and demand free nurseries for all children irrespective of where they are or where they come from. If we allow charges to be made, only a small number of children will be able to benefit and if this taxation is accepted the few workplace nurseries that now exist will be closed or put at serious risk.
6.15 am
I hope that, even at 6.15 am, Conservative Members will think for a moment about what they are doing and the serious social reversal which they are trying to push through the House. When people judge the Members of this Parliament, there will be several issues at which they will look very carefully. The roll of shame will include those who came here on a Friday afternoon to defeat the Chronically Sick and Disabled Persons (Amendment) Bill. That defeat can have been welcomed by no one except the foxes who were not hunted that afternoon by Tory Members. There have been many vicious, mean and nasty pieces of legislation, but little as vicious, mean and nasty as a measure to tax children, nurseries and parents.
Those children will not be able to go to nurseries and will lose the important opportunity for pre-school development, and many of their parents will have to give up work, so that their standards of living will fall. Once again, the Government are creating greater divisions in our society rather than greater unity. Conservative Members are keen on tax concessions for stud farms and horses. They are more interested in such concessions, which benefit the wealthy, than in nurseries for working-class children.
I hope that the House will recognise that our provision of nursery facilities is very inadequate. We are far behind the rest of Europe and many other parts of the world, and there is an enormous demand for an increase in nursery facilities. In my own borough there is a huge dispute on the matter, and many demands are being made for increased nursery provision. I would hope that the House could discuss measures to increase the provision, rather than this dirty little move by Conservative Members.

Mr. Stuart Randall: I have been impressed by the quality of the debate on new clause 26. The passion on the Opposition side has been authentic. The new clause is about the quality of life, in particular for single-parent women and young children. The comments of the hon. Member for Tatton (Mr. Hamilton) and the reactionary nonsense expressed by other Conservative Members made me feel almost ashamed to be a Member of this House.
This country is very backward in the provision of nursery facilities when compared with other European countries, which have made great strides in providing nurseries as part of their economic and social structure. The development of the industrial systems in those countries has embraced the family as a whole, whether that family consists of a husband, and wife or of a single male or female parent.
The new clause is very important. Government Members have reacted meanly, quibbling over little figures that would have no effect on the Government's economic strategy. The figures are trivial. The


Government are trying, as my hon. Friend the Member for Barking (Ms. Richardson) said, to push women back into the home. That is a disgraceful, retrogade step. It shows that the thinking of the Government is backward.
We should develop workplace nurseries for all children. They should be freely available and provided either through state funding or, like the nurseries that we have been discussing, by business enterprises. Such provision is crucial. Without it, women's opportunities to go out to work to exploit their qualifications and to develop their careers, or simply to do what they are motivated to do, will clearly be inhibited.
It is remarkable how few facilities we have. We are discussing fewer than 100 schemes and, I imagine, no more than 2,500 children. It beats me why the Government will not encourage such arrangements. The number of workplace nurseries has remained static, or declined, because of the recession. There will be no rapid increase, so why are the Government reacting in this way? It is phoney to compare the cost of nurseries with car park and accounting facilities but we have to do so as the Government think only in terms of pound notes. Nursery facilities are important to industry as we have valuable resources that should be exploited, not inhibited just because a woman has had a family. One company employs women as computer programmers. They have to go around the country, so they must have care arrangements for their children. If we fail to provide such facilities, that valuable resource cannot be tapped. Industry, women and their children therefore have an interest in them. So, too, must the Government as they should be concerned about our resources and how we exploit them.
There have been changes in opportunities for women. It is widely accepted that women should not be penalised in work because they have children. Family life as between a husband and wife should be encouraged and preserved. It is sad that the number of single-parent families has increased, but that is the result of our society as much as it is the fault of individuals. The Government are being mean.
I was asked to describe what I thought was the key to the Government's attitude in Committee. It is undoubtedly the number of schemes that the Government have introduced that have shifted wealth from the poor to the rich. People who earn £50,000 a year are about £109 a week better off as a result of the past four years of Tory rule. Those whom we are considering in respect to workplace nurseries will be between £2 and £3 a week worse off. We have seen this tremendous shift, just as we saw a shift on stud farms in an earlier debate. That was another example of taking money from the poor and giving it to the rich. It is a tragedy that workplace nurseries are being penalised in this way.
The hon. Member for Tatton, to whom I ought not to refer too much, because so much contempt is felt towards him on the Opposition Benches, referred to the scheme being of benefit to directors. That was an outrageous and silly suggestion. The people about whom we are talking are on a wage equivalent to that of an average secretary. They are on a salary of £5,000 or £6,000 a year.
This proposal will affect the quality of life of young children, women and single-parent families. Hon. Members who hold surgeries will have come across the great problems of single-parent families. If the

Government had any compassion, they would support the clause and ensure that children, women and single-parent families have a better deal in future.

Mr. Tony Banks: It is clear that the Opposition consider the Government's proposal typically mean, squalid and petty-minded. I hope that that message can go out from the House, because it is typical of the Government's general attitude as reflected in the Budget.
Most of the points have been well made, and I do not wish to repeat them. I hope that the Financial Secretary is aware of the depth of feeling on the Opposition Benches towards the proposal, because it smacks of Government vindictiveness.
What level of responsibilty will the Government accept for the advice that the Revenue apparently gave the Equal Opportunities Commission? The concept of asking for up to six years' back tax from parents smacks of petty vindictiveness by the Government of the worst possible kind. I cannot believe that the Financial Secretary would wish to persist in the proposal. Even if he is not prepared to agree to the new clause that we seek, will he say something about the six years' back tax? Surely he will not insist that that back tax be paid, if, indeed, he continues with the measure. Secondly, is it fiscal neutrality that makes the proposal so attractive to the Government? If so, they are being inconsistent yet again.
The Bill is riddled with exceptions. Mention has been made of canteens and car parks. Will the Financial Secretary be coming back next year to propose that the canteen and car parking facilities in the House should be taxed? I very much doubt that he would be prepared to do so. If he wishes to be consistent, the interests of fiscal neutrality would require him to do that.
Perhaps the purpose of the new ruling is to raise revenue, which is one of the purposes of having a Budget. If so, the Financial Secretary can tell us how much money has been raised so far from this tax, which, as my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Segemore) pointed out in his characteristically powerful way, the Financial Secretary said had been imposed by the last Labour Government.
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If there are only between 70 and 90 workplace nurseries now, it cannot be consistent for the Financial Secretary to suggest that the new clause will lead to a vast upsurge in the number of workplace nurseries. Up to now, everyone has assumed that there was no tax anyway—even if the benefit was taxable, no tax was paid. There has not been a vast explosion in the number of such nurseries because people were acting under a misconception. How can the Financial Secretary say, as I believe he did in Committee, that if our suggestion were carried, there would be a massive increase in the number of workplace nurseries?
There is some equivocation in the Labour party' s stand on the provision of workplace nurseries by the employer. Clearly, we want free nursery education at the point of need for all children under the age of five. That does not exist now, and it will not exist under the policies of this Government. The number of nursery places is continually being cut as local education authorities are savagely attacked by the Government's policies. As we cannot have what we want under this Government, we are prepared to support this new clause, because, unsatisfactory though the provision of nursery education by employers is, it is


better than nothing, and nothing is what we shall have if the Government persist with this squalid and petty measures.

Mr. Fisher: I support new clause 26. This is the only opportunity that our debates on the Finance Bill have given us to talk about the effect on children and parents of the Government's measures. Like my hon. Friends, I believe that the only long-term solution to this problem is the provision of nursery education and facilities throughout the country. I am glad that the Financial Secretary appears to be accepting that point.
In Committee, the Financial Secretary, with characteristic generosity, described the speech of my hon. Friend for Birmingham, Hodge Hill (Mr. Davis) in introducing the amendment that predated the new clause as being:
one of the most excellent advocate cases that I have heard for employer-provided nurseries." — [Official Report, Standing Committee A, 26 June 1984; c. 1470.]
I hope that the Financial Secretary will remember the logical and passionate drive of the introduction to the new clause by my hon. Friend the Member for Hodge Hill. His speeches in Committee were good, but his speech this morning was superb. It was a wonderful exposition of the case, and I think that it carried all hon. Members who were fortunate enough to be in the Chamber to hear it.
In particular, I hope that the Financial Secretary reads the speech, and remembers it, because when he addressed the House he limited himself to talking about the definition of nursery facilities, of children and of the word "available", and about the tax considerations. There is a possibility that a child could come under the general rule in Schedule E, if the employer met the employee's pecuniary liability under the Budget legislation, or under section 60 of the Finance Act 1976. In choosing to take that line of purely semantic definitions and tax considerations, the Financial Secetary lost sight of what the new clause should be about. It is really an educational matter. That is what I want to concentrate my remarks on.
My hon. Friend the Member for Hodge Hill has already demolished the whole idea that it is a perk. It can only be considered a perk by Conservative Members if they regard education as a perk. Only the most extreme and bigoted Conservative Members, none of whom are present today, and those who consider that only private education is true education would consider this a perk. It is an important right.
As my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) said, pre-school education is valuable for language development and manipulative skills. Most important, even from the age of two, it is important for the development of social skills. Speaking as a former teacher, I can say that the advantages provided to children by preschool and nursery education in social contacts are enormous and easily observed in the speed of progress made by children who have enjoyed those advantages.
I suspect that most Conservative Members who pay for private education for their children take up the advantage of private education before their children reach the age of five because they recognise the importance to their children of social and educational contacts at the earliest possible age.
If the Financial Secretary limits his wind-up remarks to the tax problems that may arise from the new clause or, indeed, the problems of definition in relation to facilities

and availability, and the definition of children, which remain unchanged from our previous amendment, he will not be doing his cause or his Government's case a service. We are putting forward educational arguments.
I remind the Financial Secretary of the arguments adduced by the late Lord Butler, when he introduced the Education Act in 1944 as Secretary of State. It is clear, and it is accepted in the teaching profession, that he intended nursery and pre-school education to be comprehensive and universal. He hoped that education authorities throughout the country would introduce that policy as soon as they were able to do so. It was only Lord Butler's romantic or naive expectation that caused him, or those who drafted the 1944 Act, not to tie down the statutory obligations on education authorities to provide such nursery facilities and education. All of us involved in education feel that that was a great pity, and that it was a great loss to the country that that was not tied up in 1944 and has not been changed since. It should be done as soon as possible.
The city of Stoke-on-Trent is lucky enough to have some of the best and most widely available nursery provision in the country. I can testify to its valuable role in the education of the community as a whole. I hope that the Financial Secretary will at least pay some acknowledgement to the vital and central importance of nursery facilities in discussing the matter of its educational aspects, rather than deal with merely the tax implications.

Dr. Marek: I can see here the stamp of the Government in its usual form. The proposal will benefit parents on average and low income much more than those on high incomes. Because of that, the Government are not being generous or doing anything, so far as I can see, to ensure satisfacion for those members of the public who will be affected.
I associate myself with all the remarks made by previous Opposition speakers. I shall not repeat them. I have made my contribution in Committee and I have no intention of repeating that. I hope that the Government will accept the new clause. They may advise Conservative Members to vote against it. In that case I have one question, which has been touched on by my hon. Friend the Member for Newham, North-West (Mr. Banks). Some parents may be faced with bills of £3,000, £4,000, £5,000 or even £6,000, and that would be manifestly unfair.
During progress on the Bill there have been instances when the tax position was unclear, and on those occasions the legislation has reflected the position as people thought it to be.

Mr. Moore: indicated dissent.

Dr. Marek: There have been at least two cases, which for the moment I cannot recall, when it was generally accepted that the tax position was unclear and open to different interpretation. The benefit of the doubt fell as previously stated.
This has been recognised by the Equal Opportunities Commission and by parents. As far as I can see, it has also been accepted by the Inland Revenue, because we are not aware of anyone paying tax. Therefore, it would be manifestly unfair if these sums, considered by some to be large, were now obtained by the Inland Revenue.
Cannot the Government introduce a moratorium —perhaps by creating an extra-statutory concession terminating today—to ensure that no tax is demanded by the Inland Revenue from people who have taken


advantage of these services and who have hitherto not paid tax? I am quite sure that about 99 per cent. of those people have not paid tax because they genuinely believed that no tax was payable.
If the Financial Secretary accepted that suggestion, he would go a long way towards retaining his credibility as someone doing his ministerial job but with a human face. I shall certainly vote for the new clause. This is not a question of getting a few thousand pounds from the wealthy, who may have £100,000 to play with and may consider such sums to be peanuts. Many ordinary people will face hardship unless something is done. That hardship will be caused because, possibly, they have been ill-advised by bodies such as the Equal Opportunities Commission. Let us see whether the Financial Secretary has some humanity.

Mr. Austin Mitchell: I shall be brief, partly to set a good example and partly because I had hoped that the parliamentary sketch writers would have arrived by now. As they have not, my journey is a little unnecessary, but, some basic arguments must be put.
This question involves two systems of welfare—the publicly provided system and the tax allowance system. The new clause argues for the tax allowance system of welfare so far as it applies to nurseries. If section 62 remains unamended, it would be unreasonable if the tax allowance system were cut at the same time as the Government are cutting the publicly provided system of nursery education by forcing economies on local government.
There may well be a case for cutting the tax allowance system of welfare in order to widen the tax base, but it is justifiable to do that only if, at the same time, one extends public provision, and makes it universal and free. Therefore, it is justifiable to do what the Government are doing only if they intend to spend public money on providing a universal system of nursery education. Since the Government are now cutting back both systems of nursery education, their proposal is unforgivable.
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The Government's proposal, which our amendment would cancel out, is particularly cruel to those who must pay large sums of money in back tax, and is understandably unacceptable to them. It is one of those anomalies in the tax system that the Financial Secretary can justify, as he did in Committee. He can no doubt put forward a tenable argument that has been provided by his departmental officials, but in their heart of hearts everyone knows that it is wrong. Conservative Members have sat silent, with the exception of the hon. Member for Berlin, East. He provided us with the usual insane free market justification. However, the end result of his free market economics would be the provision of nannies for the upper class and the abolition of nurseries for the rest. That is the logical conclusion of a free market. It would be a step towards the nanny state, but it would be unacceptable to us.
Conservative Members know in their hearts that the Government's proposals are wrong. The new hon. Member for Surrey, South-West (Mrs. Bottomley) has been benignly smiling throughout this debate, but it cannot be at the rapturous experience of seeing the dawn come up for the first time from this parliamentary dustbin. It must

be that she agrees with the arguments that have been put forward on behalf of women by Opposition Members. It would be amazing if that were not so.
I shall comment briefly on the sums of money involved. The figure of £8,500 at which people become liable for tax has not been changed since 1976. If it was uprated in line with inflation, it would now be £15,000 a year. More importantly, if the employer's subsidy is £2,000 per year for each nursery place, the parent need only earn £6,500 per annum to be caught in the tax net. It would seem that the Inland Revenue has been arguing not that the tax has been collected, but that since 1948 people have had the opportunity to pay it. Now, under the extension of the opportunity state—which this Government concentrate on—everyone will have the opportunity of having that opportunity made compulsory. The tax will be collected.
Will that tax, and all the back tax owing on those nurseries where parents have not been paying it for many years, now be collected? How many people will be affected? How will the whole process affect the number of workplace nurseries available? Can the Financial Secretary forecast the effect of this enforcement of opportunity on those parents and children who now benefit from workplace nursery education?
Labour Members are convinced that the effect will be detrimental. There has already been a reduction in the number of workplace nurseries. Up until the mid-1970s, the number was increasing as the number of female employees, single-parent families and opportunities for women to work brought nurseries to the fore. The recession has reduced the number of nurseries and the Government's proposals will almost certainly reduce them further.
In this day and age, child care in a workplace nursery should not be regarded as a perk. It is essential and should be treated as such. It is particularly essential for women workers who will suffer disproportionately from the Government's ruling. They are most likely to want to use nurseries for their children and are more likely to be low paid. They will be particularly hard hit.

Mr. Canavan: The debate has exposed the Tory party's double standards and hypocrisy. Members of the Tory party are content with legislation under which they can gain big tax concessions by sending their children to fee-paying schools while discriminating against parents whose pre-school age children attend workplace nurseries. That is disgusting, and the new clause seeks to remedy it.
I hope that hon. Members, irrespective of party, will think about family interests, particularly single parents and their young children. I appeal to hon. Members to consider what the existing legislation does other than to discriminate against working mothers who send their children to workplace nurseries.
Not long ago the Tory Government passed legislation, despite opposition, to remove the statutory obligation on local education authorities to provide nursery education. That was done not on education grounds, but on financial grounds. Ministers told us that they would not give education authorities enough money to provide pre-school places for educational reasons or because the mother had to work. There are many reasons for expanding pre-school education, whether in workplace or local authority nurseries. Nursery places are needed not just to allow the mother the freedom to work, but to expand the pre-school child's educational opportunity.
Many of my hon. Friends have referred to research and the difference in opportunity offered to children from different evironments. One way of equalising opportunity is by maximising the number of nursery places, whether in the educational sector or in workplaces. The Government have removed the legal obligation on education authorities to provide places for children whose parents wish them to have the advantage of pre-school education. At the same time, they are tolerating and defending a system of discrimination through the taxation system, which we seek to abolish through the new clause. The sum that will go to the Treasury as a result of maintaining the status quo will be minimal.

Mr. Mikardo: The sum that will go to the Treasury will be not minimal, but negative. Against the £1,000 or so that the Treasury will collect in tax from women who use a workplace nursery must be offset the fact that women will not go to work if a nursery is not available, and will instead draw state welfare benefits, and they will be greater than the revenue.

Mr. Canavan: My hon. Friend is right, and he has exposed my usual fault of understatement.
In a letter dated 26 June, in reply to my letter on behalf of organisations which were worried about the Finance Bill and urged me and other hon. Members to seek appropriate amendments, the Minister said:
Employer subsidised nurseries are, however, only available to a very few employees (perhaps less than 2,000).
Will the Financial Secretary give the House the evidence behind that statistic? What is the estimated income to the Treasury, which he is defending? My hon. Friend the Member for Bow and Poplar (Mr. Mikardo) pointed out that it would be negative because some of those 2,000 working mothers would probably have to pack in their jobs completely and, in the words of Tory Members, become a burden on the state and make no contributions to the Treasury through income tax and national insurance.
Yesterday afternnon a Minister asked the House not to make this a party political divide. He was almost asking us not to bring politics into the House of Commons. I appeal to Tory Members, whose minds may not be as closed as those of Cabinet Ministers by Tory party dogma. The Tory party has always prided itself on being the party that projected the philosophy of freedom of choice for the individual and defence of the family as the basic social unit. If Tory Members believe in freedom of choice, they should consider the negation of freedom, which voting against the new clause will mean for many young mothers who will face an agonising choice if they are fortunate enough to have employment combined with a workplace nursery for their children. They will be denying freedom to those young working mothers. They say that they believe in the sanctity of family life, but if they vote against the new clause they will be denying an opportunity not just to mothers, but to children who would benefit from pre-school care or education. I appeal to Tory Members to vote with us if they truly believe in freedom of choice, in the expansion of opportunities for women and children, and in family life in general.

Mr. Wrigglesworth: I support the arguments that have been deployed in favour of the new clause, but some of

those arguments should be reinforced before we vote on it. The hon. Member for Falkirk, West (Mr. Canavan) mentioned the commitment, not just of the Conservative party but of all hon. Members, to sustaining and strengthening family life. Like other hon. Members I want many more nurseries at workplaces, which would provide opportunities to many women who could not fulfil their potential by staying at home and looking after their children. That in itself would be a major contribution to family life, not just for the obvious economic reasons but because, as our population becomes increasingly highly skilled and educated, housewives and mothers with professional and educational qualifications could use them in the community. They become increasingly frustrated if they cannot use their qualifications effectively.
Anyone who studies the maladies that affect society today will know that alcoholism grievously afflicts many housewives who stay at home and do not have the opportunity to work. Those who have the qualifications should have the freedom to be able to work.
Another major factor is that workplace nurseries and the freedom that they provide will make a substantial economic contribution to the entire community, so we should seek to extend such nurseries rather than restrict them. Women have made an increasing contribution to the wealth creation and economic well-being of the community in recent years, and the continued and increased provision of workplace nurseries will help to perpetuate that process. For all those reasons, and the many others adduced from the Opposition Benches, I hope that the House will accept the new clause.

Mr. Moore: We have had a long and interesting debate that has followed closely the debate initiated in Standing Committee by the hon. Member for Birmingham, Hodge Hill (Mr. Davis). The discussion has been about workplace nurseries, the rights of women to work and pre-school education. Hon. Members on both sides of the House can have sympathy with the social importance of many of the points that have been made, though that is not the subject of the new clause. That is about tax relief on employer benefits to employees or directors, and it is that to which we should address our attention, as opposed to the general acceptance by people of rational views on the important social benefit that workplace nurseries can provide.
After another all-night sitting—we had many such long sittings in Committee upstairs—I will answer some of the main questions that have been asked, and then argue why I must advise my hon. Friends to vote against the new clause. Any points that I fail to answer I shall seek to cover in correspondence. Much of the debate that has taken place on this issue, both tonight and upstairs in Committee, merits some detailed comments to illustrate the precise legal position on the taxable nature of certain benefits, particularly as many people do not seem to realise that they are taxable, and I will seek to inform hon. Members who are interested in having information as opposed to having only a simple debate on that score.
The hon. Members for Hackney, South and Shoreditch (Mr. Sedgemore) and for Hodge Hill—I shall come to the latter's substantive points later—asked how often the benefit had been assessed in the past. As hon. Members who understand Revenue matters will appreciate, my reply is that it is difficult to say. It is not the sort of information that would normally be held centrally, nor would it be reasonable to expect it to be so held.
For workplace nurseries, I suspect that the answer is not often. There are only 2,000-plus employer subsidised nursery places in the country. To judge from my post-bag and the debates we have had since the issue become more public, many of the employers providing workplace nurseries argue that they were unaware of their responsibilities for tax. I accept many of the comments that have been made about the nature of the ways in which there were doubts in people's minds on the issue. However, that does not change the law and the need for people to act in accordance with it.
I repeat what I said upstairs in Committee. On the information and advice I have been given—obviously, I cannot identify the person concerned—I have mentioned that at least one employer at the Kingsway Children's Centre has made returns for a number of years. In addition, a number of employers are discussing with the Revenue the valuation of similar benefits for tax purposes.
Several hon. Members referred to the cost of the new clause and the fact that the purpose throughout was not to suggest that it was a massive revenue sum. I accept that. It was simply to illustrate the theoretical cost relating to the clause. The estimated cost is worked out on the basis that all receiving the benefit would be declaring it for tax purposes and paying tax on it.
On that basis, the Exchequer would, we believe, receive about £1 million in tax, and that would be the cost of exempting the benefit. To the extent that some recipients of the benefit are, for whatever reason, not paying tax on it, revenue lost from exempting it would be reduced. To what extent it would be reduced it is difficult to say. As there are no central records of the numbers paying tax on the benefit, it is impossible to be more precise about the actual revenue loss.
I have been asked whether there was any change of practice and also about the law. The benefit has been taxable in the hands of directors and those employees covered by the special rules for the taxation of benefits in kind—in the same way an other benefits in kind—since the special rules were first introduced in 1948.
I have not sought to suggest that this is a Labour party measure. It was introduced in 1948 and confirmed in 1976. Its application seems to have found the agreement of both sides of the House. All benefits in kind under this legislation are taxable, with certain specified limited exemptions, in the hands of directors and employees who come within the special rules. In the most notable recent House of Lords case on the tax treatment of benefits in kind, Lord Templeman, in Wicks v. Firth and Johnson v. Firth, said:
Not only does section 61, of the Finance Act 1976, deliberately apply to every conceivable form of benefit to the cost of an employer which may be said to enure in any way to the advantage of the employer, without exception, but it would be illogical to provide any exception.
The hon. Member for Hodge Hill asked about the Government"s plans to tax all benefits equally with cash. He quoted at length from a letter to Mr. Grantham from the private secretary to my right hon. Friend the Chancellor of the Exchequer. I am surprised by the apparent surprise that hon. Members are expressing at parts of the letter. Much of the letter has been covered in parliamentary questions and I shall supply the hon. Gentleman with the Hansard references. The letter sets out our long-term policy, which has been stated on a number of occasions. There are a number of anomalies, however,

including the exemption of canteens and the £8,500 threshold. However, my right hon. Friend the Secretary of State for Transport, when he was Financial Secretary to the Treasury, made it clear that there can be no question of our moving precipitately. He said that action would be taken only after full consideration had been given, in the context of the long-term policy, to simplifying and rationalising our personal tax system.

Mr. Deakins: rose—

Mr. Moore: I have many points to which to respond. I ask the hon. Gentleman to allow me to continue. I have listened to the debate with considerable patience and I should like to place some points on the record as well as dealing with the argument. I imagine that the hon. Member for Hodge Hill wishes to catch your eye, Mr. Deputy Speaker, when I resume my place.
The hon. Member for Walthamstow (Mr. Deakins) asked about the threshold. The Government's policy has always been clear. My right hon. Friend the Secretary of State for Transport, when a Treasury Minister, explained that it is our long-term aim to work towards the abolition of the threshold and to have equal treatment for benefits in kind. That was made clear in public by my right hon. Friend.
The hon. Member for Leeds, West (Mr. Meadowcroft) asked about the position of local authority nurseries and why we should not tax the parents' benefit. The tax under schedule E can be assessed only on income, including benefits in kind, from employment. With workplace nurseries there is a clear link with employment, but that is not so with local authority nurseries. The place is provided by the authority as a social service, not because of employment.
There has been much discussion about the relative position of car parking spaces. As I explained earlier, such spaces are taxable. No charge would arise under the normal rules of schedule E where the employer uses his own land for a car park because the car parking space cannot be turned into "money's worth", in Revenue terminology. The employee cannot sell or sub-let the parking space. However, a charge may arise under the special rules applying to directors and employees earnang about £8,500 a year. That is what I meant when I said that the benefit was taxable. Where the employer owns or leases the land in question, the cost in law is the annual value of the land as defined in section 531(1) of the Income and Corporation Taxes Act 1970. In practice, where land is owned by the employer, the Inland Revenue takes the annual value to be the gross rateable value of the car parking space. My hon. Friend the Member for Tatton (Mr. Hamilton) partly explained this matter to the House. This will usually be a small de minimis amount. The Inland Revenue does not seek to assess any tax due, because that would not be cost-effective on the de minimis operation.

Mr. Mikardo: Has the hon. Gentleman ever had a look at the multi-storey staff car park at Heathrow which cost a fortune? That was not a minimal amount.

Mr. Moore: I shall answer the hon. Gentleman at more length in a written reply.
There is a clear difference between land owned and used and land rented out and the arrangements made about


that land. They are all taxable. The question is whether the tax benefit fits under the assessment for the de minimis rule or whether there is a benefit above the £8,500 threshold that merits collection. Because this is a complex matter, I shall let the House have more details later.
The hon. Members for Barking (Ms. Richardson) and for Hodge Hill asked about the inclusion for a number of years of employer-subsidised nurseries in a list of fringe benefits on which, according to the "Which? (Tax Saving Guide",) one does not have to pay tax. I understand that this year the item was omitted. The hon. Member for Barking is right — it is only recently that employees generally receiving this benefit would have been earning at a rate to come within the scope of the special rules for higher paid employees. I note that the Consumers Association has changed the wording to make the position clear. I shall certainly look into the points raised by the hon. Lady about whether there has been a Treasury comment on the matter and ascertain what I can do to ensure that we assist organisations where we can.
However difficult the matter, the position has always been clear. In law, the benefit has always been taxed. the hon. Member for Hodge Hill has not disputed this point; He recognised the legal position.
I have been perplexed at the attention that has been given to this whole issue by the Opposition Front Bench during the whole debate on the Finance Bill. As the hon. Member for Barking rightly reminded me, I met a delegation of senior members of the Opposition to discuss the matter. I explained the facts in detail. They are not palatable when people are hurt or uncomfortable. I discussed generally—I was not seeking a commitment—the principle that I thought was shared by both sides of the House. That principle, which has continued over many years, concerned the way in which this country should move from what by some are called "perks", or employer-provided benefits. I did not expect a response from the Opposition. I believed that there was common ground on that principle.
I was even more perplexed, because—this might be bad for my political career— I have come to respect greatly the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I think that I share with the hon. Gentleman a distaste for the type of perquisite avoidance society which has existed. I share with the hon. Gentleman what are in many ways puritanical attitudes towards some aspects of society that we find distasteful. To that extent, I was perplexed when the issue was raised in Committee. I expected the official Opposition to make a clear statement of principle about a change in their attitude towards all tax reliefs so that such reliefs were regarded as legitimate, but there was no such change.
If there had been such a clear statement, I should have understood the nature of the debate more. If there had been a statement of a change of policy, I should have wondered why the House was asked to address this relief, as opposed to so many other potentially socially beneficial reliefs—care for the disabled and reliefs for those who travel to work. I could go on about the types of reliefs about which all Treasury Ministers have received, and resisted, pressure. I could have wondered why those reliefs were not the ones that the House was asked to address on this

occasion. As we were asked to address only this relief, I was even more surprised at the discriminatory and limited nature of the selection.
I said in Committee, and I repeat, that I respect in every way the excellent speeches by the hon. Member for Hodge Hill and his argument, which has been well put, about the nature and importance in our society of pre-school education and workplace nurseries. I understand and have great sympathy for what he said, I had great difficulty in disagreeing with much of what he said. However, that is not what we are discussing. We are discussing a proposal specifically relating to a tax relief that seeks to isolate one section of the community. I do not want to discuss the numbers. I accept that they are limited. I accept that the figure is only approximately 2,000 children and that it could grow if such reliefs were allowed.
The hon. Member for Leeds, West honourably argued that he saw the relief as a lever and an opportunity. That was an honourable argument along the lines of the equity case that I would have expected the Opposition to argue, in the tradition of Attlee. As I said in Committee and as has often been reported in the media, the figure of £600 million is the potential cost. In equity, I would have expected the Opposition — or Conservative Members would—not to believe that one could offer a relief only to those who were already blessed with the fact that their employers were far-sighted enough to provide nurseries. What about, not the 2,000, but the millions of women with children of pre-school age who do not have such a benefit? Do they not merit relief?

Mr. Barron: If the Rates Bill were removed, we could expand nursery services.

Mr. Moore: That is not the proposition before the House. The proposition before the House is for the exclusion of those with over £8,500 of earnings, including taxable benefits, who already have employer-supported nurseries. I would have understood it fully if the Opposition had argued—perhaps after the debate they will seek to argue it—that generally the issue is so important that one should argue for the general case. However, they have not. I find it very strange. The case that created so much public attention was associated with the Kingsway Children's Centre, which happened to have among its employers Thames Television, London Weekend and other media organisations. I have not noticed those organisations giving platforms for relief for people such as the disabled as opposed to the platform that they have given, where, to put it mildly, they may have an interest.
No one in the Conservative party underestimates the difficulties of women at work, who have children. No one could fail to welcome the activities of far-sighted employers who develop nursery facilities, but I am sure that all of us would not want to subscribe to this elitist, discriminatory clause that would ignore the needs of the majority while seeking to benefit the few.

Mr. Terry Davis: It is significant that so many of my hon. Friends have stayed throughout the night. [Interruption.] The hon. Member for Eltham (Mr. Bottomley) may laugh, but he has been in and out in his usual way—a bleeding heart that never bleeds all the way to the Lobby. Members from all parts of the Opposition have stayed to debate the new clause because we believe in it and we make no apology for that.
I am also grateful to my hon. Friend the Member for Barking (Ms. Richardson) who has contributed as Labour spokesperson on women's rights. She will agree, however, that on some issues men must also be prepared to stand up and argue for women's rights. In this case we are arguing not just for women's rights but for men's rights as well. This is a Socialist new clause and we intend to press it to a Division.
It was even more significant that the only Conservative Back Bencher to take part in the debate was the hon. Member for Tatton (Mr. Hamilton). I shall be kind in my comments about his speech because at least he had the courage of his convictions, unlike some of his hon. Friends who express sympathy in letters and telephone calls and when they are lobbied by parents affected by this but are not willing to speak on the subject in the Chamber, still less to join us in the, Lobby and vote for the new clause.
The hon. Member for Tatton was wrong, however, when he argued, and was echoed by the Financial Secretary, that only directors and higher paid employees would benefit from the new clause. He obviously did not listen to my explanation of the way in which the £8,500 was calculated and the way in which the cost to employers of workplace nurseries was added to low wages so that an employee on £100 per week or even less would be liable for tax. When we say that the person on £5,000 or £6,000 per year will be liable for tax we assume that that person has only one child in the workplace nursery. It is not unknown for single parents to have more than one child under five years old. Before we have any cheap sneers from some Tory Members, let them recall that that group includes many widows. The hon. Gentleman seems not to have listened to his hon. Friend the Financial Secretary either, as it is the Government's policy to abolish the threshold and to tax everyone as soon as they can get round to it—not precipitately, not next week, but perhaps next year.
We do not disagree with the hon. Gentleman that directors and higher-paid employees will benefit, but he is wrong to say that only they will benefit. A workplace nursery benefits every child and every parent involved. The Government's new tax will jeopardise workplace nurseries throughout the country. We seek to exempt them because we believe that that will encourage empoyers to provide nurseries.
I do not mind if a director sends his or her child to the workplace nursery because under the new clause, which the hon. Member for Tatton has clearly not read carefully, the tax benefit will be available only if the nursery is available to the children of all employees. I do not mind the director getting the tax benefit if it means that there will be places for the children of the typists, the cleaners and the man on the door. Everyone will benefit if employers are encouraged to provide workplace nurseries by the provision of tax exemption, provided that places are available to all staff, just as the factory canteen is available to all staff. I have never seen many directors in factory canteens, but they are entitled to go there and I have no objection to that. That is why canteens were exempted from tax by parliament and that is why nurseries should be exempted on the same basis.
I agree with all those who say that nursery places should be provided free of charge for all children everywhere. That is our ideal. In the meantime, we must use every tool and lever that we can find to encourage the provision of nursery facilities wherever we can, including provision by

employers. Just as the working class movement fought for a National Health Service by getting employers to provide a service in the old days until a Labour Government provided it for everybody, so we should get nurseries from those employers who can be persuaded to provide them until, eventually, they are available for everyone.
The Financial Secretary agrees with me about the importance of workplace nurseries. The only difference between us is that he wills the end but not the means. He talks about inequity, and about those who are unable to benefit, but he has never answered the direct question that we put to him in Committee and again in this debate. Some employers provide factory canteens, and some do not. The employees of employers who provide canteens benefit from those canteens. The employees of employers who do not provide them cannot benefit. Exactly the same argument as applies to workplace canteens applies to workplace nurseries. That is why the new clause is not inequitable.
7.30 am
The Financial Secretary believes that both parties accept the principle that perks should be taxed. He could have fooled me. I remember the debates of 1976, in which the Conservative party opposed the taxation of perks. To the Opposition, the workplace nursery is not a perk. It is like the workplace canteen and should be provided on the same basis.
The Financial Secretary asks why we are so concerned about the Kingsway Children's Centre. It is a slur to suggest, as he does, that the reason why we are upset is that some media employers have empoloyees whose children attend that centre. The senior managers and directors of London Weekend Television are not my friends. It is the Financial Secretary whom they telephone—though to no effect.
Why are we so concerned about the centre? We are concerned because that is where it started. What happened at that centre was the thin end of the wedge. The parents whose children attend that centre were the first parents to be taxed by the Government. They were the first to pay the nursery tax. They did not mount the campaign by choice. The Government, by their refusal to restore the position to what it had previously been put those parents in the front line.
The new clause is not about those 25 parents. It is not about the 2,000 parents whose children attend other workplace nurseries. In voting for the new clause we shall be voting for genuinely equal opportunities for women, for greater support for single parents of both sexes and for more nursery places for children.

Question put, That the clause be read a Second time:—

The House divided: Ayes 58, Noes 220.

Division No. 405]
[7.34 am


AYES


Atkinson, N. (Tottenham)
Cocks, Rt Hon M. (Bristol S.)


Banks, Tony (Newham NW)
Cohen, Harry


Barron, Kevin
Cook, Robin F. (Livingston)


Beckett, Mrs Margaret
Corbyn, Jeremy


Beith, A. J.
Cowans, Harry


Bell, Stuart
Cox, Thomas (Tooting)


Bennett, A. (Denfn &amp; Red'sh)
Dalyell, Tam


Blair, Anthony
Davis, Terry (B'ham, H'ge H'l)


Campbell-Savours, Dale
Deakins, Eric


Canavan, Dennis
Fields, T. (L'pool Broad Gn)


Carlile, Alexander (Montg'y)
Fisher, Mark


Clay, Robert
Golding, John






Harrison, Rt Hon Walter
Randall, Stuart


Hogg, N. (C'nauld &amp; Kilsyth)
Richardson, Ms Jo


Holland, Stuart (Vauxhall)
Rooker, J. W.


Kennedy, Charles
Ross, Stephen (Isle of Wight)


Kirkwood, Archy
Rowlands, Ted


Litherland, Robert
Sedgemore, Brian


Lloyd, Tony (Stretford)
Skinner, Dennis


Loyden, Edward
Smith, C.(Isl'ton S &amp; F'bury)


McDonald, Dr Oonagh
Spearing, Nigel


McTaggart, Robert
Strang, Gavin


McWilliam, John
Thompson, J. (Wansbeck)


Marek, Dr John
Wallace, James


Maxton, John
Wigley, Dafydd


Meadowcroft, Michael
Wrigglesworth, Ian


Mikardo, Ian
Young, David (Bolton SE)


Mitchell, Austin (G't Grimsby)



Nellist, David
Tellers for the Ayes:


Pike, Peter
Mr. Don Dixon and Mr. Allen McKay.


Powell, Raymond (Ogmore)





NOES


Alexander, Richard
Freeman, Roger


Alison, Rt Hon Michael
Gale, Roger


Amess, David
Galley, Roy


Ashby, David
Gardiner, George (Reigate)


Atkinson, David (B'm'th E)
Goodhart, Sir Philip


Baker, Rt Hon K. (Mole Vall'y)
Goodlad, Alastair


Baker, Nicholas (N Dorset)
Gorst, John


Baldry, Anthony
Gower, Sir Raymond


Banks, Robert (Harrogate)
Gregory, Conal


Batiste, Spencer
Griffiths, Peter (Portsm'th N)


Beaumont-Dark, Anthony
Grist, Ian


Bellingham, Henry
Ground, Patrick


Best, Keith
Hamilton, Hon A. (Epsom)


Bevan, David Gilroy
Hamilton, Neil (Tatton)


Biffen, Rt Hon John
Hannam, John


Biggs-Davison, Sir John
Hargreaves, Kenneth


Blaker, Rt Hon Sir Peter
Harris, David


Bonsor, Sir Nicholas
Hawkins, C. (High Peak)


Boscawen, Hon Robert
Hawksley, Warren


Bottomley, Peter
Hayes, J.


Bottomley, Mrs Virginia
Hayhoe, Barney


Bowden, A. (Brighton K'to'n)
Hayward, Robert


Bowden, Gerald (Dulwich)
Heathcoat-Amory, David


Brandon-Bravo, Martin
Heddle, John


Bright, Graham
Henderson, Barry


Brinton, Tim
Hickmet, Richard


Browne, John
Hind, Kenneth


Bruinvels, Peter
Hirst, Michael


Buck, Sir Antony
Hogg, Hon Douglas (Gr'th'm)


Burt, Alistair
Holt, Richard


Butterfill, John
Hooson, Tom


Carlisle, Kenneth (Lincoln)
Howard, Michael


Cash, William
Howarth, Alan (Stratf'd-on-A)


Chalker, Mrs Lynda
Howarth, Gerald (Cannock)


Chope, Christopher
Hubbard-Miles, Peter


Clark, Dr Michael (Rochford)
Hunt, David (Wirral)


Clark, Sir W. (Croydon S)
Hunter, Andrew


Cockeram, Eric
Irving, Charles


Colvin, Michael
Jessel, Toby


Conway, Derek
Johnson-Smith, Sir Geoffrey


Cope, John
Jones, Robert (W Herts)


Cormack, Patrick
Kellett-Bowman, Mrs Elaine


Couchman, James
Key, Robert


Cranborne, Viscount
King, Roger (B'ham N'field)


Currie, Mrs Edwina
Knight, Gregory (Derby N)


Dickens, Geoffrey
Knight, Mrs Jill (Edgbaston)


Dicks, Terry
Knowles, Michael


Dorrell, Stephen
Lang, Ian


Douglas-Hamilton, Lord J.
Latham, Michael


Dover, Den
Lawler, Geoffrey


du Cann, Rt Hon Edward
Leigh, Edward (Gainsbor'gh)


Eggar, Tim
Lennox-Boyd, Hon Mark


Evennett, David
Lester, Jim


Fallon, Michael
Lightbown, David


Favell, Anthony
Lilley, Peter


Fenner, Mrs Peggy
Lloyd, Peter, (Fareham)


Forman, Nigel
Lord, Michael


Forsyth, Michael (Stirling)
McCurley, Mrs Anna


Forth, Eric
Macfarlane, Neil





MacKay, Andrew (Berkshire)
Smith, Tim (Beaconsfield)


Maclean, David John
Soames, Hon Nicholas


Major, John
Speller, Tony


Malins, Humfrey
Spencer, Derek


Malone, Gerald
Spicer, Jim (W Dorset)


Maples, John
Spicer, Michael (S Worcs)


Marland, Paul
Squire, Robin


Mather, Carol
Stanbrook, Ivor


Maude, Hon Francis
Stanley, John


Mawhinney, Dr Brian
Steen, Anthony


Maxwell-Hyslop, Robin
Stern, Michael


Merchant, Piers
Stevens, Lewis (Nuneaton)


Meyer, Sir Anthony
Stevens, Martin (Fulham)


Miller, Hal (B'grove)
Stewart, Allan (Eastwood)


Mills, Iain (Meriden)
Stewart, Andrew (Sherwood)


Mills, Sir Peter (West Devon)
Stewart, Ian (N Hertf'dshire)


Mitchell, David (NW Hants)
Stokes, John


Moate, Roger
Taylor, John (Solihull)


Moore, John
Taylor, Teddy (S'end E)


Morris, M. (N'hampton, S)
Temple-Morris, Peter


Morrison, Hon P. (Chester)
Terlezki, Stefan


Moynihan, Hon C.
Thompson, Donald (Calder V)


Neale, Gerrard
Thompson, Patrick (N'ich N)


Needham, Richard
Thurnham, Peter


Nelson, Anthony
Townsend, Cyril D. (B'heath)


Newton, Tony
Tracey, Richard


Nicholls, Patrick
Trippier, David


Norris, Steven
Twinn, Dr Ian


Oppenheim, Philip
Viggers, Peter


Ottaway, Richard
Waddington, David


Page, Richard (Herts SW)
Wakeham, Rt Hon John


Parris, Matthew
Waldegrave, Hon William


Pawsey, James
Walden, George


Porter, Barry
Walker, Bill (T'side N)


Powell, William (Corby)
Wall, Sir Patrick


Powley, John
Ward, John


Proctor, K. Harvey
Wardle, C. (Bexhill)


Raffan, Keith
Warren, Kenneth


Rathbone, Tim
Watson, John


Rees, Rt Hon Peter (Dover)
Watts, John


Rhys Williams, Sir Brandon
Wells, Bowen (Hertford)


Robinson, Mark (N'port W)
Wheeler, John


Roe, Mrs Marion
Whitfield, John


Rowe, Andrew
Winterton, Mrs Ann


Rumbold, Mrs Angela
Winterton, Nicholas


Ryder, Richard
Wolfson, Mark


Sackville, Hon Thomas
Wood, Timothy


Sayeed, Jonathan
Woodcock, Michael


Shelton, William (Streatham)
Young, Sir George (Acton)


Shepherd, Colin (Hereford)



Silvester, Fred
Tellers for the Noes:


Sims, Roger
Mr. Michael Neubert and Mr. Tim Sainsbury.


Skeet, T. H. H.

Question accordingly negatived.

New Clause 28

BUSINESS EXPANSION SCHEME

`In section 56(2)(d) of the Finance Act 1981, for the words "(including letting ships on charter or other assets on hire)" there shall be substituted the words "(including letting assets, other than ships, on hire)".'. —[Sir William Clark.]

Brought up, and read the First time.

Sir William Clark: I beg to move, That the clause be read a Second time.
This new clause need not detain the House for long. It concerns a simple but most important point. We have been speaking about the shipping industry, and we have passed the capital allowances for shipping, so there is no point in going back over those arguments. However, I think that all hon. Members, including my hon. Friend the Minister, will agree that in future the shipping industry will have a cash flow problem that is worse than the one that it had before the Budget.
I shall not rehearse the arguments as to whether the industry should have that problem, but we could eliminate an anomaly and at the same time help the shipping industry. The Minister will recollect that the letting of ships on charter is excluded from the business expansion scheme. I cannot see why shipping, which is a high-risk industry, with harsh overseas competition, particularly from the Norwegians, should be disadvantaged in this way. I do not know whether my hon. Friend is aware that in Norway there is a scheme, similar to our business expansion scheme, that is suitably tailored for the Norwegian shipping industry. Secondly, our shipping industry will have more competition not only because of its cash flow increase, but because it will be competing against the Norwegians who have a scheme similar to the business expansion scheme.
I assure my hon. Friend that there is no question of my trying to create a loophole whereby people can avoid tax. The regulations for the business expansion scheme, if it were accepted for the shipping industry in principle, could be so drafted that only genuine shipping activity would qualify for the scheme. My hon. Friend should consider this, because, even if he cannot undertake to do it this year, some hope ought to be held out to the shipping industry. He will recollect that I raised this question in Committee, and either he or his hon. Friend the Financial Secretary said that they were considering the business expansion scheme.

Mr. Hayhoe: There is a wide range of eligible trades under the business expansion scheme, but, as with its predecessor, the business start-up scheme, certain trades are excluded. A company is not eligible, for example, if its trade consists to a substantial extent in dealing with land, shares, commodities or banking, insurance and other financial activities. Another of the excluded trades, as my hon. Friend has said, is leasing and letting assets on hire, which includes letting ships on charter. The purpose of the clause is to remove this exclusion on ship-chartering from the scheme. The underlying aim of the scheme is to promote growth in activity, including jobs in the small firms sector. The scheme is also for trades where the risks to the investor to some extent are commensurate with the generous level of relief. Certain trades are excluded, not because they are considered in any sense to be undesirable or undeserving, but simply because they do not fit easily with the underlying aims.
To qualify, a company must carry on its trade wholly or mainly in the United Kingdom. As indicated in the statement of practice issued by the Inland Revenue, this is interpreted to mean that at least 50 per cent. of the activities of the trade taken overall should be in the United Kingdom. My hon. Friend, I am sure, will acknowledge that it will be difficult to meet this objective in the case of a shipping company.

Sir William Clark: I am afraid that I cannot accept that, because the coastal shipping would qualify under the 50 per cent. condition. While I appreciate that the present rules of the business expansion scheme do not allow for this, I am endeavouring to extend the rules.

Mr. Hayhoe: I understand well what my hon. Friend is doing. He seeks to change the rules so as to include shipping where it is at present excluded. When he

interrupted me—and I gave way—I was acknowledging that it applied particularly to exclusion when the ships were engaged mainly or wholly in third country trade. The condition of having 50 per cent. of the activities of the trade within the United Kingdom boundaries would then clearly not be met. I understand that industry representatives have suggested that, to qualify, a company's ships should be registered in the United Kingdom. That makes good sense. It is a condition of registration in the United Kingdom that certain of the ship's officers are British. The fact would remain that, apart from this, there might be little benefit by way of direct activity within the United Kingdom.
My hon. Friend was persuasive in his moving the clause. He will recognise that my hon. Friend the Financial Secretary earlier made some important statements on shipping in another context. I hope that my hon. Friend will feel that it would be right to reflect upon those statements, and not to pursue the new clause.
I gladly give him the undertaking for which he asked. Of course these matters will be considered again in the light of his comments and, indeed, in the light of the comments of other hon. Members. He will understand that I can make no commitment but that we shall be very willing to examine the suggestions put forward when the matter is considered again.

Sir William Clark: I thank my hon. Friend for that reply. Perhaps I, too, can give a categoric assurance that I shall be back with this next year. I hope that he will consider the matter sympathetically within the next 12 months. With that assurance, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 35

TAX INCENTIVE TO PROTECT THE ARTS IN BRITAIN— ALLOWANCE AGAINST INCOME TAX

An allowance against income tax shall be given for any contribution towards a purchase of art objects as identified and approved by the Minister for the Arts, for donation to any public museum or gallery collection, up to a percentage of the total income of the donor to be determined from time to time by an order made by statutory instrument by the Treasury — [Mr. Rathbone.]

Brought up, and read the First time.

Mr. Tim Rathbone: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this, it will be convenient to discuss new clause 36 —Tax incentive to protect the Arts in Britain—increase tax benefit for payment of capital transfer tax in kind—
The tax exemption benefit to the individual donor to the Nation of any work of art, or payment in kind of capital transfer tax debts, shall be increased from 25 per cent. to 50 per cent.

Mr. Rathbone: New clauses 35 and 36 refer to the heritage. Some of us feel as though we are part of it at this hour of the morning. The new clauses are intended to help the Government to follow the clearly established Government policy to preserve and protect the British heritage, in both public and private hands, and to encourage private ownership in the belief that that is both the most satisfying and most economic way of preserving and extending our national assets. That was clearly stated


by the Minister in the excellent debate that was initiated in another place by my noble Friend Lord Fanshawe on 15 May.
The intent is under serious threat, as we have been reminded in this past week in our own salerooms by the sale abroad of most of the 70 old master drawings from Chatsworth and the purchase for an undisclosed destination of the Turner seascape from Lord Clark's estate.
Under our present tax system these sales are bound to continue as purchasers from other countries, especially from Germany, Latin America and Japan, become more active in our market, and as purchasers from the United States such as the Getty museum search to improve their collections by purchasing in Britain, which is the only remaining market in the world where works of art such as those I have mentioned still become available on the market from private collections.
The Getty collectors alone have to spend at a rate of £1·25 million per week from an income of £1·65 million per week. Those enormous sums are being used responsibly to cherish, preserve and catalogue the arts and to educate people about the arts. But to meet and sometimes to beat those competing collectors, the Government will need to examine and introduce ways of using the tax system to encourage further growth in private support for the arts and the heritage, as we promised in those very words in our election manifesto only a year ago.
New clause 35 is one way to provide much-needed help. It is designed to establish a principle for future Government action, as the words of the new clause make clear. It would embrace only those art objects that are identified as important, probably by the application of the Waverly criteria, establishing both the importance of an art object and its association with this country. The level of relief must be established according to the ability of our national coffers to meet such costs at any particular time.
With that leeway, I hope that my right hon. Friend and our hon. Friends at the Treasury will not find the new clause too threatening. It is not peculiar, as similar schemes have existed in many countries for many years, most notably and successfully in the United States. Such a scheme, at whatever most generous level the Government think fit, taken with the direct funding for museums that the Government already make available, should go a long way towards meeting the ever-increasing art values and ever-increasing competition for good art objects. Such an incentive scheme should encourage private collectors to do even more than they do already to protect and enhance our country's art heritage.
The debate on fiscal incentives for the arts often turns into an argument about the pros and cons of covenants versus income tax incentives. I shall not be tempted down that route. However, they do not have to be alternatives. They can run together, people can choose between them, and the net additional cost will be no larger.
New clause 36 touches on another aspect of the same problem, because capital transfer tax is so often the motivating force behind sales of so many of our art treasures often sold overseas. This is in spite of the system whereby CTT liabilities may sometimes be settled in kind by surrendering art objects to the state in lieu. But this system was only applied to a total tax debt of less than £1 million in the fiscal year just ended, and only £6·5 million

since 1979—a real drop in the ocean of total annual art sales in this country alone, and in stark contrast to the purchasing power, particularly, of the United States museums and trusts.
Although any object accepted for this purpose is by statute exempted from tax, the Treasury withholds, in accordance with an administrative decision made more than 25 years ago, three quarters of the benefit of this statutory tax when arriving at the amount of tax debt that can be written off on its books. That high proportion was criticised as excessive only recently by a House of Commons Select Committee, which in effect urged a reduction to one quarter. Many distinguished bodies and informed persons have taken the view that in any event the benefit of the statutory tax exemption ought in future to be divided more equitably.
It should be done in such a way that, although the state would still come into possession of a heritage object at a reduced figure, the other party to the bargain — the owner—would receive increased encouragement to enter into it. An equal inducement, or the douceur as it is often called, to both parties to the transaction—the 50: 50 division which I suggest and which is reasonably favoured by the Museums and Galleries Commission—obviously has a great deal to recommend it.

Mr. Alex Carlile: We are now seeing an art drain from the United Kingdom which is affecting not only the most obvious things such as pictures and sculptures, which frequently come up for sale in the salerooms of London, but other works of art of enormous importance. They are a significant part of our heritage, particularly books and manuscripts of great historical interest and value.
As the hon. Member for Lewes (Mr. Rathbone) rightly implied, one of the problems is the inequitable power of the Getty trustees in buying up whatever they can lay their hands on in an effort to spend the vast amount of money at their disposal. However, many other trustees from abroad have enormous purchasing power with which we find it difficult to compete. When that is set alongside the cumulative effect of taxes, one gets the great problem of many works of art coming up for sale and all too many of them going abroad.
This has recently been compounded by what one can charitably call serious misjudgments on the part of the British museum. That compounding effect will deprive us of yet more important works of art which we wish to keep in the United Kingdom.
One of the significant matters dealt with in new clause 35 is that works of art to which donors could make contributions should be kept in museums and public galleries. The adoption of the new clause would mean not only that we would save important works of art from going abroad, but that effectively we would bring many of them out of private ownership and into public galleries and museums where they could be seen by many members of the public.
It is quite wrong that the great museums and art galleries of this country, such as the Manchester city art gallery and our great art gallery in Cardiff, Wales, as well as all other significant, and perhaps not so significant, galleries should have to go to the Government cap in hand to try to obtain funds, when there are imaginative ways of obtaining them from somewhere other than directly from the public purse.
New clause 35 suggests that members of the public should be able to donate contributions from their incomes towards the purchase of works of art and to obtain tax relief on works of art of particular significance. It offers a new and imaginative initiative that would undoubtedly find much favour with the public. I believe, too, that it would have a significant effect on keeping important works of art in this country. I hope that the Government will at the very least say that they will give very serious consideration to accepting such an initiative.

8 am

Mr. Cormack: I congratulate my hon. Friend the Member for Lewes (Mr. Rathbone) on his initiative in tabling these two new clauses. He has done the House a service. I am particularly glad that he referred to the work of the Select Committee. When compiling our report we looked at the systems in operation in America and Germany, and they are both similar to what is proposed in the new clauses.
I await the reply of my right hon. and learned Friend the Chief Secretary with interest and eager anticipation, but not over-optimistically. The Select Committee report was produced in October 1982, and it eventually got a reply 18 months later. We received a fairly dusty document, in which all our fiscal recommendations were turned down out of hand.
My right hon. and learned Friend's devotion to culture and knowledge of the arts is well known and widely acclaimed, but he could do much better, The Select Committee's recommendations should have commended themselves to a Conservative Government. They were the unanimous recommendations of an all-party Select Committee, that was chaired by my friend—and I am pleased to call him that—Christopher Price. Although I had the privilege of chairing most of the sittings on the arts, we worked very closely together. There were hon. Members of all shades of opinion from three parties on the Committee, but we came to a unanimous conclusion that it was sensible, right and proper to have fiscal incentives, such as those commended by my hon. Friend the Member for Lewes, modelled on those that already exist in the United States and Germany, to name but two countries. That should have been music to the ears of a Tory Government, and should have been entirely consistent with what my right hon. Friend the Prime Minister said in her famous candle-end speech. The Tory party had a great conference on the arts in, I think, 1978, before we first came into office. At a gathering composed of illustrious people from all sections of the heritage and arts world, my right hon. Friend said that, whatever it might be necessary to do, we would never make the arts suffer, or impoverish them, as that would mean mere candle-end economies. I have paraphrased her remarks, but at this time in the morning I am sure that hon. Members will forgive me if my memory is less than precise. However, she used the words "candle-end economies", and that was the thrust of her remarks. Since then her speech has been quoted many times.
To a degree, the Government have lived up to that pledge, in that the arts have suffered less than other areas when cuts have been made during the past five years. But the Government now have a marvellous opportunity to do something positive, innovative, exciting, challenging and not too expensive.
I urge my right hon. and learned Friend to demonstrate that he has taken the message to heart. Will he promise to set up the type of committee on which he once served? I remember vividly that in 1978 we set up a committee to consider how best to further the interests of the arts and heritage. Among its members were my right hon. and learned Friend the Chief Secretary, Sir Robert Cooke and myself. The three of us, and others, came to the unanimous decision that this was what we should do.
I hope that two years' hard labour at the Treasury has not so hardened my right hon. and learned Friend's heart as to lead him away from the path of righteousness that he once trod with such delicate felicity. I hope for a sensible and encouraging reply.

Mr. Nicholas Winterton: Does my hon. Friend the Member for Staffordshire, South (Mr. Cormack) agree that the Treasury need not necessarily spend any money on assisting the arts? I agree with the proposals in the new clauses but would it not be sensible for the Treasury to set up an independent panel of experts on the arts who are more appraised of the true value of works of art than the Treasury apparently is? I am thinking in particular of the Chatsworth collection. If the Treasury had recognised the true value of that collection, the nation would still possess it and it would not have gone abroad. Because the Treasury was inexperienced in works of art and their value—

Mr. Cormack: Will my hon. Friend give way?

Mr. Winterton: I am bringing my intervention to a reasonably speedy conclusion. Does my hon. Friend agree that we should set up an independent body of people experienced in the arts and their value? I understand from a number of experts that they are prepared—

Mr. Speaker: Order. This seems a long intervention.

Mr. Winterton: I am bringing my intervention to a speedy end, Mr. Speaker.
Does my hon. Friend support the setting up of a committee comprising experts who would give their services free and advise the Treasury on the true value of works of art?

Mr. Cormack: In a word, yes. My hon. Friend the Member for Macclesfield (Mr. Winterton), with a loquacity which does not always become him, has anticipated what I was about to say to my right hon. and learned Friend. The events of last week in connection with the Chatsworth drawings were an unhappy repeat of the Mentmore experience. For a relatively bargain price the nation could have had a wonderful collection. In the end the Treasury spent almost as much on just a few objects.
My right hon. and learned Friend is supremely equipped to give an encouraging reply, and I confidently expect him to give it. I hope that he will give serious thought to the reincarnation of the committee that we set up before. It should be comprised of experts and he should preside over it. It could then come to the House before long with ringing endorsements of the Select Committee's approach and the line advocated by my hon. Friend the Member for Lewes.

Mr. Peter Rees: I congratulate my hon. Friend the Member for Lewes (Mr. Rathbone) on initiating a short but interesting debate.I am grateful to my hon. Friend the Member for Staffordshire, South (Mr. Cormack) for refurbishing my rather dusty credentials for offering my


views on this subject. We all wish to preserve our remarkable cultural heritage and we agree that the fiscal system has a part to play.
My hon. Friend the Member for Staffordshire, South recalled a telling phrase of my right hon. Friend the Prime Minister about candle ends. It is the melancholy duty of the Chief Secretary to concern himself with candle ends. In so doing, he sometimes makes way for more generous and attractive measures that have a bearing on the preservation of our heritage.
Turning to the suggestions embodied in the two new clauses, new clause 35 is an enlargement of what has been described as the covenant route. In a sense, it reproduces a provision that exists in the United States. It is difficult to cost such a measure. I hesitate, and feel a certain sensitivity, about inflicting on the House such crude considerations as cost. My hon. Friend the Member for Macclesfield (Mr. Winterton) suggested that this could be done without cost through an infusion of private funds. In a sense that may be true, but tax forgone in the arid circles in which I move must be regarded as a cost to the public purse. There is an element of choice and it is up to each hon. Gentleman to express his set of priorities.
I recognise that my hon. Friend the Member for Lewes leaves open the question of what proportion of a taxpayer's income may be devoted in this way. In America the tax forgone on donations to charities is about $9·6 billion. We could be talking about considerable sums.
I do not wish to tread as far back as my hon. Friend the Member for Staffordshire, South did. His notable contribution on both sides of the House over the years is considerably greater than mine. I remind the House that a certain amount has been done. The period for which a covenant can be effective for tax purposes has been reduced from seven to four years, and the relief for higher rate tax is now afforded up to £5,000 for an individual taxpayer. That is a considerable step forward.
New clause 36 relates to capital transfer tax. That mechanism has been in operation for many years. It is well known to my right hon. and hon. Friends as the douceur and derives from the Waverley Committee in the 1950s. We must consider whether the reliefs that have been offered have been sufficiently generous and struck a firm balance between the general body of taxpayers and the individual trustees or executors to ensure that there is a flow of works of art, which legitimately and properly should be regarded as part of our heritage.
I listened carefully to the hon. and learned Member for Montgomery (Mr. Carlile). I understand his anxiety about the buying capacity of some institutions abroad. It is not for me to comment on their resources or buying tactics. Whether they will be found to have made serious inroads into our market it is not yet possible to say. I understand his anxiety, which is not exclusive to the Liberal party, but I am sure that he was not claiming it as such

Mr. Stephen Ross: The right hon. and learned Gentleman said that he is responsible for these matters. He could make himself extremely popular by finding £600,000 with which to purchase the "Crucifixion" for the Manchester City art gallery. Next Monday is the expiry date

Mr. Rees: I do not accept that responsibility. It is a matter for my right hon. and noble Friend the Minister for

the Arts. It will be possible to draw his attention to the intervention of the hon. gentleman. There are many cases of that sort and, mercifully, it would probably be outside the rules of order at this hour of the morning to embark on the case of Calke Abbey. The Department of The Environment and the Treasury played a modest role in that, although once again, properly, the lead was taken by my right hon. and noble Friend the Minister for the Arts.
8.15 am
As to the capital transfer tax route, which is the theme of new clause 36, my hon. Friend will recognise that considerable steps have been taken, although not specially in the douceur area. I know of the anxiety that has been expressed twice by the Select Committee of which my hon. Friend the Member for Staffordshire, South is such a distinguished member. My hon. Friends will be the first to recognise that we have taken considerable steps, especially on maintenance funds, which are equally important in safeguarding parts of our heritage. But these matters are not costless; ultimately, they are a charge on the Vote of the Minister for the Arts. If my hon. Friend's new clause is accepted it will reduce the number of works that can be bought unless there is an extension of the funds voted to my right hon. and noble Friend.
Against the background of what has been done, there are still many possibilities, and if resources allowed, we could do more. I hope that my hon. Friends will give credit for what we have done since 1979

Mr. Cormack: Will my right hon. and learned Friend say something about my suggestion of a committee, which was endorsed by my hon. Friend the Member for Macclesfield (Mr. Winterton)?

Mr. Rees: It is attractive to suggest that keen minds —not necessarily Government minds—should play over the subject. However, I suspect that the dimensions of the problem are known. We could have interesting debates about individual works of art, but that is not the thrust of my hon. Friend's new clause

Mr. Nicholas Winterton: My point was that some art experts would be prepared to give to the nation their services free in valuing works of art such as the Chatsworth collection, whose price was completely underestimated by the Treasury. Had the Treasury allowed the Duke of Devonshire another £500,000, his collection would have remained in Britain. Those people would give their services free to advise the Treasury on value, which people who work in the Treasury cannot assess because they are not international art experts. The committee should be set up to advise the Treasury and thereby save for Britain valuable works of art and collections

Mr. Rees: I am grateful to my hon. Friend for amplifying his suggestion. I must modestly disclaim a lead role for the Treasury in these matters. Of course, resources will become a matter for the Treasury. I do not wish to become involved in any case about which I know nothing in my ministerial capacity, but my hon. Friend cited the Duke of Devonshire's drawings from Chatsworth. That was not a matter for the Treasury; it was a decision of the British Museum. The fact that the museum may have put a price on the collection that was not vindicated by the market raises a range of different issues.
The Treasury would probably not be short of advice; but it is not for the Treasury—this may reassure some


hon. Members—to appraise works of art; it is for the institutions such as the British Museum and the National Heritage Memorial Fund, and they are not short of advice. My hon. Friend the Member for Staffordshire, South is saying that from time to time we should reflect whether the fiscal instruments available to us are doing the work for which they were designed. My door—I am sure that I can speak for my right hon. and noble Friend the Minister for the Arts—is always open for fresh consideration of those matters. As the years go by, perhaps an instrument that was suggested by the Waverley committee some years ago will not be operating as satisfactorily as it should. At present there is no overwhelming evidence that the douceur system is failing in its purpose.

Viscount Cranborne: My hon. Friend the Member for Staffordshire, South (Mr. Cormack) has established quite a track record in the conservation and preservation of pictures and works of art. Is it not a fact that the American system does more than that in that it encourages people to buy pictures, thereby increasing the stock of the heritage rather than merely preserving it? One advantage of the suggestions of my hon. Friend the Member for Lewes (Mr. Rathbone) would be that we might get away from what some of us perhaps feel is a dangerous museum mentality

Mr. Rees: I take my hon. Friend's point, but perhaps he was not in his place when I commented on what I understood to be the American system, though I cannot claim to have plumbed its depths. I understand it to be costing in tax about $9·6 billion a year, which is a considerable sum. My hon. Friend will accept that perhaps the Americans, with their superb advantages in many spheres, do not start with some of the advantages that we in these islands still enjoy, of having a considerable cultural heritage.
The Americans have a distinguished culture of their own, though, naturally, not spanning the centuries. I am sure that my hon. Friends have a particular feeling for this aspect, and perhaps the Americans feel that they must redress the balance. However, I do not want to embark on a comparative study of the two cultural heritages. We do not start from the same position. Nor, I must admit with utter candour, do we have their economic resources.
We at the Treasury are, naturally, concerned with the fiscal issues. The deployment, as it were, and matters affecting the institutions are more matters for the Minister for the Arts. We are debating whether some of the fiscal instruments can be sharpened. We have been given food for thought and I should like to reflect, without giving any formal commitment, on the matter to see whether more can he done by either of the routes suggested. As my hon. Friend the Member for Staffordshire, South knows, the door is always open when it comes to considering suggestions. I do not know whether we need the formality of a committee, though I look back with nostalgia to the days when he and I, and various others, inside and outside the House, made what I believe was a great contribution to the development of thought in this sphere.
Against that background, I can give the assurance that this Administration will always be astute to see that the tax system is sensitive to the preservation of this country's remarkable cultural heritage. I hope that my hon. Friend will feel that he has initiated a useful debate and that, with that assurance, he will feel able to withdraw the new clause

Mr. Rathbone: We have had a good short debate and my right hon. and learned Friend has reacted positively. I do not think I am wrong in reading into what he said an admission that there is no doubt that the real security of the heritage depends on the tax system. That belief is shared throughout the arts and heritage world and across the political divide. I am pleased that he will give due consideration to having an inspection into whether the tax system is operating to that end, with particular heed being paid to the ideas contained in the new clause. With that assurance, for which I am most grateful, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Schedule 2

VEHICLE EXCISE DUTY

Mr. Wallace: I beg to move amendment No. 95, in page 125, line 38, after 'Northern Ireland', insert
'or which (whenever registered) is of less than 1300 cc'.
The effect of the amendment would be to establish a vehicle excise duty of £60 per annum for all private vehicles with a cylinder capacity of 1300 cc or less. This reduced rate already exists for that special class of vehicle, those registered before 1 January 1947. The amendment would extend the relief—two thirds of the rate which would otherwise apply — to a modest basic size of family car.
We do not make any great claims for this modest proposal. Many would suggest that we go further and challenge the very existence of the vehicle excise duty. Many of my constituents who live on the smaller islands have access to only a few miles of wee roads and they take great exception to paying the same rate of excise duty as those living near the centre of Birmingham with access to many hundreds of miles of motorways.
There are many who feel that it would be wise to abolish the duty and make up the revenue from petrol duty so that the road user, especially with a vehicle of inefficient fuel consumption, would have to pay. Unfortunately, we are lumbered with the duty for the time being and we seek to introduce some refinement of it.
First, we would wish to refine the system in the name of fairness. Having endured a number of years when the balance of the Budgets presented by the Government has almost certainly been tilted in favour of the rich, there is a strong case for somewhat redressing the balance and taxing the basic family car at a lower rate than a larger luxury car. In many instances, larger cars are part of company fleets and the tax is paid by the employer company. We do not say that the amendment is a great progressive tax measure, but it is a step in the right direction.
Secondly, the proposed relief is in the cause of oil conservation. It is estimated that 79 per cent. of the energy consumed by the transport sector in 1982 in the United Kingdom was consumed by road transport and that about 60 per cent. of total transport use could be attributed to the private car or the motor cycle.
Although it is impossible to plot a straight-line, direct relationship between cylinder capacity and petrol consumption — energy efficiency is also a significant factor—I think that it will be generally accepted that there is a relationship between cylinder capacity and amount of petrol that is consumed by a particular vehicle.
The shock of the 1973 oil crisis made everyone conscious of the need to conserve energy. Speed restrictions were introduced to promote that cause. Latterly —no doubt the trend has been due in part to North sea oil riches — there has been greater complacency. In 1970, 50 per cent. of private cars and vans were under 1300 cc, but by 1982 the proportion had fallen to 26 per cent. There has clearly been a trend towards the use of cars with much larger engines. We do not claim that the amendment would overnight change purchasing habits, but it would be a step in the right direction.
We are regularly told that the Government, or at least the Department of Energy, are promoting an energy efficiency campaign. The amendment is a practical measure that would back up such a campaign. It is in contrast to the lunatic proposals which were published recently, which would increase the mileage allowances of hon. Members in line with engine capacity. That is the sort of measure that brings the House into disrepute with the public and runs counter to the example that we should be showing to the public by giving a lead in energy conservation.
Many might quibble about the limit of 1300 cc. We have related that cylinder capacity to the size of a basic family car, which covers such a popular car as the Mini Metro. We believe that it is a reasonable cut-off point. I commend the motion to the House, in the interests of fairness and energy conservation

Mr. Hayhoe: The hon. Member for Orkney and Shetland (Mr. Wallace) has explained that the purpose of the amendment is to extend the £60 reduced rate of vehicle excise licence to all cars of less than 1300 cc rather than to all cars registered before 1 January 1947. The hon. Gentleman described the consequent relief as modest. I must tell him that making all cars not exceeding 1300 cc eligible for the £60 rate would bear on 8·5 million cars, representing a revenue loss of over £250 million. If the hon. Gentleman sees that as a modest relief in the context of the Budget, one wonders in what world of fantasy he and his colleagues live. That is an extraordinary sense of priorities

Mr. Alex Carlile: Does that take into account the energy savings that would be made if the public were encouraged by proposals of this sort to use cars with smaller engines which therefore use less fuel?

Mr. Hayhoe: I said that the revenue cost—we are dealing with the legislative effect of the Budget—of the amendment is more than £250 million. In the context of the debate in Committee and on Report, it is extraordinary to propose to absorb so many resources into such a measure.
The hon. Member for Orkney and Shetland raised an interesting question about the comparison between changes in VED and fuel tax. That is a different and wider question, which does not arise on this amendment. As the hon. Gentleman rightly said, this matter absorbs the attention of many hon. Members. The bare proposition before the House is not acceptable. I hope that, if pressed the House will reject it

Mr. Wallace: I believe that my hon. Friends will be disappointed at the Minister's reply. My hon. and learned Friend the Member for Montgomery (Mr. Carlile) made it clear in his intervention that no account had been taken of the energy savings that would be achieved by the amendment. It is becoming clear to the nation and to many hon. Members that, although the Department of Energy is trying to do a good job supporting energy efficiency, it is receiving no help from any other Government Department. That should be made clear.
The figure cited by the Minister suggests that our measure might be more progressive than that we had believed. Having regard to the Minister's reply, I certainly have no intention of withdrawing the amendment, and shall press it to a Division.

Question put, That the amendment be made:—

The House divided: Ayes 11, Noes 195.

Divlsion No. 406]
[8.32 am


AYES


Ashdown, Paddy
Wallace, James


Beith, A. J.
Wigley, Dafydd


Campbell-Savours, Dale
Wrigglesworth, Ian


Carlile, Alexander (Montg'y)



Hancock, Mr. Michael
Tellers for the Ayes:


Owen, Rt Hon Dr David
Mr. Michael Meadowcroft and Mr. Archy Kirkwood.


Ross, Stephen (Isle of Wight)



Skinner, Dennis





NOES


Alexander, Richard
Favell, Anthony


Alison, Rt Hon Michael
Fenner, Mrs Peggy


Amess, David
Forsyth, Michael (Stirling)


Ashby, David
Forth, Eric


Atkinson, David (B'm'th E)
Freeman, Roger


Baker, Rt Hon K. (Mole Vall'y)
Gale, Roger


Baker, Nicholas (N Dorset)
Galley, Roy


Banks, Robert (Harrogate)
Gardiner, George (Reigate)


Batiste, Spencer
Garel-Jones, Tristan


Bellingham, Henry
Goodlad, Alastair


Benyon, William
Gorst, John


Best, Keith
Gow, Ian


Bevan, David Gilroy
Gower, Sir Raymond


Biffen, Rt Hon John
Greenway, Harry


Biggs-Davison, Sir John
Griffiths, Peter (Portsm'th N)


Bonsor, Sir Nicholas
Grist, Ian


Boscawen, Hon Robert
Ground, Patrick


Bottomley, Peter
Hamilton, Neil (Tatton)


Bottomley, Mrs Virginia
Hannam, John


Bowden, Gerald (Dulwich)
Hargreaves, Kenneth


Brandon-Bravo, Martin
Havers, Rt Hon Sir Michael


Bright, Graham
Hawkins, C. (High Peak)


Brinton, Tim
Hawksley, Warren


Browne, John
Hayes, J.


Bruinvels, Peter
Hayhoe, Barney


Burt, Alistair
Hayward, Robert


Butterfill, John
Heathcoat-Amory, David


Carlisle, Kenneth (Lincoln)
Heddle, John


Cash, William
Henderson, Barry


Chalker, Mrs Lynda
Hickmet, Richard


Churchill, W. S.
Hogg, Hon Douglas (Gr'th'm)


Clark, Hon A. (Plymth S'n)
Holt, Richard


Clark, Dr Michael (Rochford)
Hooson, Tom


Colvin, Michael
Howarth, Alan (Stratf'd-on-A)


Cope, John
Howarth, Gerald (Cannock)


Cormack, Patrick
Howell, Ralph (N Norfolk)


Corrie, John
Hubbard-Miles, Peter


Couchman, James
Hunt, David (Wirral)


Cranborne, Viscount
Irving, Charles


Currie, Mrs Edwina
Jackson, Robert


Dicks, Terry
Jessel, Toby


Dorrell, Stephen
Johnson-Smith, Sir Geoffrey


Douglas-Hamilton, Lord J.
Jones, Robert (W Herts)


Dover, Den
Kellett-Bowman, Mrs Elaine


Eggar, Tim
Key, Robert


Emery, Sir Peter
Emery, Sir Peter






Knight, Gregory (Derby N)
Page, Richard (Herts SW)


Knight, Mrs Jill (Edgbaston)
Parris, Matthew


Knowles, Michael
Peacock, Mrs Elizabeth


Lang, Ian
Porter, Barry


Latham, Michael
Powell, William (Corby)


Lawson, Rt Hon Nigel
Powley, John


Leigh, Edward (Gainsbor'gh)
Proctor, K. Harvey


Lennox-Boyd, Hon Mark
Raffan, Keith


Lightbown, David
Rathbone, Tim


Lilley, Peter
Rees, Rt Hon Peter (Dover)


Lloyd, Ian (Havant)
Rhodes James, Robert


Lloyd, Peter, (Fareham)
Ridley, Rt Hon Nicholas


Lord, Michael
Rifkind, Malcolm


McCurley, Mrs Anna
Robinson, Mark (N'port W)


Macfarlane, Neil
Roe, Mrs Marion


MacKay, Andrew (Berkshire)
Rowe, Andrew


Maclean, David John
Rumbold, Mrs Angela


McQuarrie, Albert
Ryder, Richard


Malone, Gerald
Sainsbury, Hon Timothy


Maples, John
Sayeed, Jonathan


Mawhinney, Dr Brian
Shepherd, Colin (Hereford)


Maxwell-Hyslop, Robin
Silvester, Fred


Meyer, Sir Anthony
Sims, Roger


Mills, Iain (Meriden)
Soames, Hon Nicholas


Mitchell, David (NW Hants)
Speller, Tony


Moate, Roger
Spencer, Derek


Monro, Sir Hector
Spicer, Jim (W Dorset)


Moore, John
Squire, Robin


Morris, M. (N'hampton, S)
Stanbrook, Ivor


Moynihan, Hon C.
Steen, Anthony


Neale, Gerrard
Stern, Michael


Needham, Richard
Stevens, Lewis (Nuneaton)


Nelson, Anthony
Stewart, Allan (Eastwood)


Nicholls, Patrick
Stewart, Andrew (Sherwood)


Norris, Steven
Stewart, Ian (N Hertfdshire)


Oppenheim, Philip
Stokes, John





Stradling Thomas, J.
Ward, John


Taylor, John (Solihull)
Wardle, C. (Bexhill)


Taylor, Teddy (S'end E)
Watson, John


Temple-Morris, Peter
Watts, John


Terlezki, Stefan
Wells, Bowen (Hertford)


Thatcher, Rt Hon Mrs M.
Wheeler, John


Thompson, Patrick (N'ich N)
Whitfield, John


Thurnham, Peter
Winterton, Mrs Ann


Townsend, Cyril D. (B'heath)
Winterton, Nicholas


Tracey, Richard
Wolfson, Mark


Trippier, David
Wood, Timothy


Twinn, Dr Ian
Woodcock, Michael


Viggers, Peter
Young, Sir George (Acton)


Wakeham, Rt Hon John



Walden, George
Tellers for the Noes:


Walker, Bill (T'side N)
Mr. Michael Neubert and Mr. John Major.


Wall, Sir Patrick



Waller, Gary

Question accordingly negatived.

Clause 10

ZERO-RATING

Mr. Hayhoe: I beg to move amendment No. 1, in page 6, line 15, leave out 'Part II has' and insert
'Parts II and III have'

Mr. Speaker: With this it will be convenient to take the following: Government amendments Nos. 4 and 5.

Government amendment No. 6, in schedule 6, page 141, line 10, at end insert —

'PART III

PROTECTED BUILDINGS

After Group 8 there shall be inserted the following—

GROUP 8A—PROTECTED BUILDINGS

Item No.

1. The granting by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.

2. The supply in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.

Notes
(1) 'Protected building' means a building which is—

(a) a listed building, within the meaning of—

(i) the Town and Country Planning Act 1971; or
(ii) the Town and Country Planning (Scotland) Act 1972; or
(iii) the Planning (Northern Ireland) Order 1972; or
(b) a scheduled monument, within the meaning of—

(i) the Ancient Monuments and Archaeological Areas Act 1979; or
(ii) the Historic Monuments Act (Northern Ireland) 1971.
(2) For the purposes of item 1, a protected building shall not be regarded as substantially reconstructed unless the reconstruction is such that at least one of the following conditions is fulfilled when the reconstruction is completed—

(a) that, of the works carried out to effect the reconstruction, at least three-quarters, measured by reference to cost, are of such a nature that the supply of services (other than excluded services) materials and other items to carry out the works, would, if supplied by a taxable person, be within either item 2 of this Group or item 3 of Group 8 above, as it applies to a supply by a person supplying services within item 2 of this Group; and
(b) that the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest;
and in paragraph (a) above 'excluded services' means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity.
(3) 'Approved alteration' means,—

(a) in the case of a protected building which is an ecclesiastical building which is for the time being used for ecclesiastical purposes or would be so used but for the works in question, any works of alteration; and
(b) in the case of a protected building which is a scheduled monument within the meaning of the Historic Monuments Act (Northern Ireland) 1971 and in respect of which a protection order, within the meaning of that Act, is in force, works of alteration for which consent has been given under section 10 of that Act; and
(c) in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of,—

(i) Part IV of the Town and Country Planning Act 1971,
(ii) Part IV of the Town and Country Planning (Scotland) Act 1972,
(iii) Part V of the Planning (Northern Ireland) Order 1972, or
(iv) Part I of the Ancient Monuments and Archaeological Areas Act 1979,

and for which, except in the case of a Crown interest or Duchy interest, consent has been obtained under any provision of that Part;
and in paragraph (c) above 'Crown interest' and 'Duchy interest' have the same meaning as in section 50 of the said Act of 1979.
(4) For the purposes of paragraph (a) of Note (3), a building used or available for use by a minister of religion wholly or mainly as a residence from which to perform the duties of his office shall be treated as not being an ecclesiastical building.
(5) Where the benefit of the consideration for the grant of a major interest as described in item I accrues to the person substantially reconstructing the protected building but that person is not the grantor, he shall be treated for the purposes of that item as the person making the grant.
(6) In item 2 'alteration' does not include repair or maintenance; and where any work consists partly of an approved alteration and partly of other work, an apportionment shall be made to determine the supply which falls within item 2.
(7) Note (2) to Group 8 above applies in relation to item 2 of this Group as it applies in relation to item 2 of that Group.".'.

Amendments to the proposed amendment: (a), in line 19, at end insert—
'(c) any building situated in a conservation area or any school or any village, community or church hall or any church which is not a listed building.'.

(b), in line 21, leave out from 'that' to 'of' in line 23 and insert

'when the reconstruction is completed'

'(c), in line 23, leave out from beginning to end of line 28 and insert—
'(a) that the cost of the works of reconstruction, excluding the cost of any associated works of repair and maintenance and any excluded services exceeds half of what it would have cost (apart from the cost of any


excluded services) at the time of reconstruction to construct the entire building in its reconstructed form; or'.

(d), in line 23, leave out 'three-quarters' and insert 'one half'.

(e), in line 29, leave out from beginning to 'excluded' in line 33.

(f), in line 43, leave out from 'alteration' to the end of line 45 and insert
'for which, except in the case of a Crown interest or a Duchy interest, consent has been obtained under any provision of,—'.

(g), in line 50, leave out from beginning to end of line 51.

Amendment No. 7, in schedule 6, page 141, line 10, at end insert—
'7. After Note 3 there shall be inserted the following Note:
(4) Item 2(b) above applies in any case where the works of alteration:

(i) are undertaken solely for the purpose of providing means of access for disabled persons to or within a building, or of providing facilities designed to secure their greater health, safety, welfare or convenience, and
(ii) are carried out—

(a) in relation to a building to which members of the public are admitted (whether on payment or otherwise), or
(b) by a registered charity, or
(c) in relation to a dwelling which is, or is to be occupied by a disabled person"'.

Amendment No. 8, in schedule 6, page 141, line 10, at end insert—

'PART III

PROTECTED BUILDINGS

7. After Group 8 there shall be inserted—

GROUP 8A—PROTECTED BUILDINGS

Item No.
1. The granting, by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.
2. The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.
3. The supply, by a person supplying services within item 2 and in connection with those services of—

(a) materials or of builder's hardware, sanitary ware or other articles of a kind ordinarily installed by builders as fixtures; or
(b) in respect of such goods, services described in paragraph 1(1) of Schedule 2 of this Act.

Notes
(1) 'Protected building' means a building which is—

(a) a listed building, within the meaning of—

(i) the Town and Country Planning Act 1971; or
(ii) the Town and Country Planning (Scotland) Act 1972; or
(iii) the Planning (Northern Ireland) Order 1972; or
(b) a scheduled monument, within the meaning of—

(i) the Ancient Monuments and Archaeological Areas Act 1979; or
(ii) the Historic Monuments Act (Northern Ireland) 1971.
(2) For the purposes of item 1, a protected building shall not be regarded as substantially reconstructed unless the reconstruction is such that when the reconstruction is completed, of the works carried out to effect the reconstruction, at least two thirds, measured by reference to cost, are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works, would, if supplied by a taxable person, be within either item 2 or 3 of this Group; and `excluded services' means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity.

(3) 'Apprcved alteration' means,—

(a) in the case of a protected building which is an ecclesiastical building which is for the time being used for ecclesiastical purposes or would be so used but for the works in question; any works of alteration; and
(b) in the case of a protected building which is a scheduled monument within the meaning of the Historic Monuments Act (Northern Ireland) 1971 and in respect of which a protection order, within the meaning of that Act, is in force, works of alteration for which consent has been given under section 10 of that Act; and
(c) in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of,—

(i) Part IV of the Town and Country Planning Act 1971.
(ii) Part IV of the Town and Country Planning (Scotland) Act 1972.
(iii) Part V of the Planning (Northern Ireland) Order 1972, or
(iv) Part I of the Ancient Monuments and Archaeological Areas Act 1979, and for which, except in the case of a Crown interest or Duchy interest, consent has been obtained under any provision of that Part;
and in paragraph (c) above 'Crown interest' and 'Duchy interest' have the same meaning as in section 50 of the said Act of 1979.
(4) For the purposes of paragraph (a) of Note (3), a building used or available for use by a minister of religion wholly or mainly as a residence from which to perform the duties of his office shall be treated as not being an ecclesiastical building.
(5) Where the benefit of the consideration for the grant of a major interest as described in item 1 accrues to the person substantially reconstructuring the protected building but that person is not the grantor, he shall be treated for the purpses of that item as the person making the grant.
(6) In item 2 'alteration' does not include repair or maintenance; and where any work consists partly of an approved alteration and partly of other work, an apportionment shall be made to determine the supply which falls within item 2.
(7) Note (2) to Group 8 applies in relation to item 2 of this Group as it applies in relation to item 2 of that Group.".'.

Amendments to the proposed amendment: (a), leave out item 3.

(b), in note (2), leave out 'two-thirds' and insert `one-half'.

(c), in note (2), leave out
'or 3 of this group'
and insert
'of this group or item 3 of group 8 above, as it applies to a supply by a person supplying services within item 2 of this group.'.

Amendment No. 9, in schedule 6, page 141, line 10 at end insert—

`PART.III

PROTECTED BUILDINGS

7. After Group 8 there shall be inserted—

GROUP 8A—PROTECTED BUILDINGS

Item No.
1. The granting, by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.
2. The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.
3. The supply, by a person supplying services within item 2 and in connection with those services, of—



(a) materials or of builder's hardware, sanitary ware or other articles of a kind ordinarily installed by builders as fixtures; or
(b) in respect of such goods, services described in paragraph 1(1) of Schedule 2 to this Act.

Notes
(1) 'Protected building' means a building which is—

(a) a listed building, within the meaning of—

(i) the Town and Country Planning Act 1971; or
(ii) the Town and Country Planning (Scotland) Act 1972; or
(iii) the Planning (Northern Ireland) Order 1972; or
(b) a scheduled monument, within the meaning of—

(i) the Ancient Monuments and Archaeological Areas Act 1979; or
(ii) the Historic Monuments Act (Northern Ireland) 1971. 
(2) For the purposes of item 1, a protected building shall not be regarded as substantially reconstructed unless the reconstruction is such that at least one of the following conditions is fulfilled when the reconstruction is completed—

(a) that, of the works carried out to effect the reconstruction, at least three-quarters, measured by reference to cost, are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works, would, if supplied by a taxable person, be within either item 2 or 3 of this Group; and
(b) that the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest. 
and in paragraph (a) above 'excluded services' means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity.
(3) 'Approved alteration' means,—

(a) in the case of a protected building which is an ecclesiastical building which is for the time being used for ecclesiastical purposes or would be so used but for the works in question, any works of alteration; and
(b) in the case of a protected building which is a scheduled monument within the meaning of the Historic Monuments Act (Northern Ireland) 1971 and in respect of which a protection order, within the meaning of that Act, is in force, works of alteration for which consent has been given under section 10 of that Act; and 
(c) in any other case, works of alteration for which, except in the case of a Crown interest or Duchy interest, consent has been obtained under any provision of—

(i) Part IV of the Town and Country Planning Act 1971,
(ii) Part IV of the Town and Country Planning (Scotland) Act 1972,
(iii) Part V of the Planning (Northern Ireland) Order 1972, or
(iv) Part I of the Ancient Monuments and Archaeological Areas Act 1979,
and in paragraph (c) above 'Crown interest' and 'Duchy interest' have the same meaning as in section 30 of the said Act of 1979.
(4) For the purposes of paragraph (a) of Note (3), a building used or available for use by a minister of religion wholly or mainly as a residence from which to perform the duties of his office shall be treated as not being an ecclesiastical building.
(5) Where the benefit of the consideration for the grant of a major interest as described in item 1 accrues to the

person substantially reconstructing the protected building but that person is not the grantor, he shall be treated for the purposes of that item as the person making the grant.
(6) In item 2 'alteration' does not include repair or maintenance; and where any work consists partly of an approved alteration and partly of other work, an apportionment shall be made to determine the supply which falls within item 2.
(7) Note (2) to Group 8 applies in relation to item 2 of this Group as it applies in relation to item 2 of that Group.".'.

Amendments to the proposed amendment: (a), leave out item 3.

(b), in note (2), leave out 'three-quarters' and insert `one half'.

(c), in note (2)(a), leave out
'or 3 of this Group'
and insert
`of this Group or item 3 of Group 8 above, as it applies to a supply by a person supplying services within item 2 of this Group.'

Mr. Hayhoe: In the debate on schedule 6 on 30 April I said that I would consider a concession to provide some relief for structural alterations to listed buildings. I announced details of this relief on 18 May and the three amendments concerned are Nos. 1, 5 and 6.
Amendment No. 1 paves the way to a new part III to schedule 6. Amendment No. 5 is the way in which the draftsman has chosen to apply to the new listed buildings relief the zero rating of certain materials supplied in connection with an approved alteration. The existing zero rating under group 8 of the zero rate schedule is applied also to the new group 8A which is contained in amendment No. 6.
The broad effect is to zero rate any alteration of a listed building which both requires and has received building consent from the appropriate planning authority. Any alteration to a listed church is zero rated. Repairs or maintenance work remain standard rated.
There is a parallel relief for builders or developers who substantially reconstruct a listed building which they own, with a view to selling it or granting a long lease of it. The sale or grant of the lease is to be zero rated, so that the builder or developer can reclaim the VAT which he incurs on the goods and services he uses.
I appreciate that some hon. Members would prefer a wider relief, and I will, of course, listen to what is said in support of the amendments linked with Government amendment No. 1.

Mr. A. J. Beith: We are all anxious to make progress as quickly as possible, and some of us would have liked to reach this point much earlier, so that we could have devoted more time to it.
From the beginning, I have welcomed this concession on behalf of my party. It is a significant and valuable improvement to the Bill. However, I question the extent of the concession. Other hon. Members may wish to mention other difficulties, but the difficulty that worries me is that it seems to have been acknowledged by the Customs and Excise that zero rating will generally be confined to major alterations to the structure of a listed building and will not include minor improvements and alterations. If that is so, the effect of the concession will be to persuade the owner or developer of a listed building


to alter that building more than he might otherwise have done and more than might be in the interests of preserving the qualities for which it was originally listed.
The object of our listed building legislation must be to conserve our listed buildings. Alteration may sometimes be necessary to fit them for modern purposes—they are still to be usable buildings—but if we induce developers to change the buildings more than they need to do, we shall directly frustrate the purposes of the listing system.
That is my fundamental objection to the wording of the Government's concession and to the way in which they have sought to limit it. The concession contains a dangerous limitation which will result in its effect being quite other than that which the Government say that they intend.
The fact that the concession is not wider will present serious problems in the future. Whereas I hope that the Government will be able to respond reasonably quickly to my first point, I could not expect them to respond very fully today to the points that I am about to make, which are nevertheless important. Many buildings in conversation areas, whose maintenance is essential to the maintenance of the character of those areas, will not benefit in any way from the concession. They will suffer directly from the imposition of VAT on building alterations, and our heritage will as a result be seriously damaged.
The concept of the conservation area was developed because it was recognised that a single listed building, or two or three listed buildings, in the high street of a town did not by themselves make that high street such a priceless heritage. If other buildings which are not of enormous merit but which are valuable contributors to the total scene are not to benefit from the concession, we shall find listed buildings standing in a desert of modern alternatives, erected because it is cheaper to rebuild than to pay the extra VAT on an existing building.
Our amendment to the Government amendment mentions some other buildings where the lack of this concession will be a serious problem. There are buildings run by voluntary organisations — such as schools —village and community halls, church halls, and unlisted churches.
The listing system has not caught up with the growing appreciation of churches of periods other than those which have found favour in the past. That is especially true of churches which are beyond the pale of the Church of England. Many nonconformist churches have been shown to be of great historical interest and individuality, but they are still only beginning to be listed. They will not get the benefit of the VAT concession and it will be tempting to pull them down and rebuild them.
In many towns and villages we have already seen churches disappear because people are faced with the choice of either trying to maintain a valuable part of our heritage or pulling the building down to replace it with one that is cheaper to maintain. We increase that temptation by raising VAT and failing to extend the concession. The result will be real hardship to many churches and church organisations and another blow to our heritage and valuable historic buildings

Mr. John Hannam: I welcome the concession on listed buildings but wish to deal principally with amendments Nos. 4 and 7 on alterations that affect disabled people. I fully support the general objective that

my right hon. Friend the Chancellor laid down in the Budget, as it represents the burden of taxation moving away from earnings to spending. The Government's stated aim is to increase freedom of choice but, in shifting the burden of taxation, we must not forget that some people do not have much freedom of choice. In regard to building alterations, disabled people do not have the same freedom of choice as the rest of us. The Budget has delivered a severe blow to them and the charities that serve them.
The National Children's Home will have to raise an additional £200,000 in the coming year, purely to pay VAT on proposed building alterations. The Jewish Blind Society will have to find an additional £100,000, the Spastics Society an additional £120,000 and Help the Aged an additional £150,000. Those are just a few examples of how charities will be hit. Those figures do not take into account the small concessions that my right hon. Friend announced after the Budget but it has been quite difficult for the charities to assess how much the concessions will reduce their financial burden. The Spastics Society has estimated that its VAT bill could be reduced by between 15 per cent. and 40 per cent. That would reduce the extra £120,000 to between £70,000 and £90,000—still a massive sum.
On their own, the figures are merely bald statistics, but nobody can deny that they represent a hefty bill. We must examine the additional finance that is required and the adverse effects that that will have on the services that charities provide. They provide essential services that would otherwise have to be provided by the state at far greater cost. Building alterations are a major part of a charity's work. They depend on the endowment or purchase of older buildings, as they tend to take over older buildings rather than build them. Older buildings need a great deal of work and renovation.
In Chertsey, for example, there is an assessment, education and treatment unit for children who suffer from cerebral palsy which has developed through parental pressure in response to local needs. It is funded almost entirely by voluntary effort. Last year it spent £45,000 on improving and extending the building to match the increasing demand for its services. This year, it plans to spend between £30,000 and £35,000 on adapting a decrepit bungalow to provide a respite service for the parents of children with cerebral palsy. The people involved are providing the very services that the Government wish to encourage and develop through their policy of care in the community.
The imposition of VAT on building alterations, however, cuts straight across that policy and the unit now faces three choices. First, it can cut other vital services to pay the VAT man. Secondly, it can curtail its building activities, but by doing that it would not be responsding to the needs of the community. Finally, it can ask its volunteers to put extra time and energy not into improving existing services but into fund-raising for Customs and Excise. They have the freedom to choose but whichever they choose, inevitably, the services to the disabled and their families will suffer.
Let us take the example of a short-stay residential home in Norfolk for severely disabled people. Various extensions, alterations, adaptations and repairs are needed to make that house habitable. Before the Budget, the VAT bill to do that work was £30,000. It is now three times that amount, and this is allowing for the exemptions announced in the Chancellor's concessions. The charities' VAT


reform group campaigned vigorously for a concession on VAT in general from this year's Budget, and the all-party disablement group has always given its full support to that campaign, and will continue to do so. For the purposes of this Bill, we have introduced an amendment that will exempt from VAT all building alterations carried out for the benefit of disabled people. It includes such work as that by registered charities, by an individual to improve access for a disabled person within the home, and work carried out to improve access to a building to which members of the public are admitted.
Amendments Nos. 4 and 7 deal with those particular points. With the exception of work carried out for the benefit of disabled people by a registered charity, the principle of giving these works exemption from VAT has already been accepted by the Government. The wording of these amendments comes from the Building (Prescribed Fees) (Amendments) Regulations 1983, which exempt such works from building control fees. Therefore, the principle that adaptations for disabled people are a special category has already been accepted by the Chancellor in that change of last year, and by the concessions that he announced after the Budget this year.
However, the concessions and exemptions not only do not go far enough, but they fail to recognise that for a disabled person no one improvement is any more important than another. For instance, if one is confined to a wheelchair, it is just as important to have one's front door rehung so that it is easier to open as it is to have a ramp installed to get the wheelchair up to the front door. While we welcome the Chancellor's exemptions as far as they go—that is they exempt VAT for the ramp—there is real concern that the refusal to grant VAT exemption for the widening of the door represents an anomaly, which will arise again and again.
I can cite a specific example of a 45-year-old man who has recently become confined to a wheelchair because of a spinal injury. He is having a number of alterations made to his house so that it can accommodate him and his disability. This involves the installation of a ramp leading up to his doorway. To get to the rest of his house, he has to pass through the kitchen, and to do this, the kitchen units have to be moved, and rehung, to leave enough room for the wheelchair.
All these alterations are essential to that person's mobility, but under the exemptions that my right hon. Friend the Chancellor has awarded, only the ramp will be zero-rated. The rehanging of the door and the repositioning of the kitchen units will not. We have expressed grave concern over these exemptions, pointing out the confusions and hard feelings that will arise between the builder and the disabled person over which work is VAT-able, and which is not. Our fear is that in the end, the builders will say that they must apply VAT on the whole lot, because they will not be able to sort out the confusions that will arise.
I tabled a parliamentary question on 4 June, to try to get this matter cleared up. The reply said:
Where a single inclusive price includes zero-rated and standard-rated items, the supplier"—
that is the builder—
will have to split the price between the items in order to calculate how much tax is due (if he cannot do this, the entire supply is liable at the standard rate)." — [Official Report, 4 June 1984; Vol. 61, c. 84.]

It does not need a great deal of imagination to see that the small builder, faced with such complexities and trying to work out what is VAT-able, and what is not, will put all the work down as being VAT-able. This is a serious anomaly about which I feel strongly, I am sure that hon. Members will agree that this should be dealt with through amendment.
The third aim of the amendment is to exempt from VAT the building alterations carried out for the benefit of disabled people, in buildings to which members of the public are admitted. We have spent a lot of time recently securing improvements in accessibiliy to public buildings. Many of these will not be affected by the Budget, because they are carried out by local authorities, which can reclaim VAT. However, there are other public buildings such as cinemas, theatres, post offices, banks and shops which need to be altered to accommodate the disabled. There is a real fear that the imposition of VAT will hinder the making of adaptations to benefit the disabled.
9 am
On costings, we all know the Treasury's answer to the claims put to it. Hon. Members have done a great deal of work and tabled questions and we now know that it is not possible for the Treasury or anyone else to estimate the cost of exempting the work covered in the amendments. However, we believe that the cost to the Treasury will be minimal while the benefit to charities and the disabled will be considerable. We have studied the general level of costs across the board, and believe that the loss of revenue involved would be not more than £1 million or £2 million. Such a move would remove the anomalies and confusion and alleviate the distress of the disabled who, after long years of campaigning to obtain relief from VAT, are now faced with VAT on building works.
The Chancellor, in his exemptions, has already reduced the potential loss of revenue to the Treasury that the amendments would create. I believe that the financial cost would be minimal and there would be a great social and financial benefit to the disabled. They do not have a choice about building alterations — they are an absolute necessity to a disabled person wishing to live an independent and satisfying life. I commend the amendments to the House and hope that my hon. Friend the Minister will accept that the disabled, who are already facing the problems of unemployment and economic distress, should not find themselves faced with further barriers to their integration in normal life

Mr. Dafydd Wigley: I support amendments Nos. 4 and 7 and warmly welcome what the hon. Member for Exeter (Mr. Hannam) said. The amendments are supported by hon. Members of all parties. They refer to a matter that has a broad consensus of support—that there should be more progress to facilitate access for the disabled into and out of buildings, and that we should be especially sensitive at this difficult time to the needs of the disabled who need to adapt their dwellings.
Amendment No. 7 refers to the three categories — first, a building to which members of the public may have access; secondly, changes undertaken by registered charities; and, thirdly, dwellings where disabled people live or are likely to live. Those three categories cover the areas that need special attention now.
The question of members of the public gaining access to buildings has been the subject of vexed and staccato progress during the past 10 to 15 years. Since the


introduction of the Chronically Sick and Disabled Persons Act 1970, there has been a definite attempt to improve access to buildings for the disabled, but the intentions of the Act have not been fully carried out because of the non-enforceability of sections 4 to 8. Because of that, I introduced the Disabled Persons Act 1981. It is three years since that Act reached the statute book, but we have not made the full progress that we hoped to make on section 6 relating to building regulations to ensure that the disabled have access to new buildings.
As we have not yet even buttoned up the area covered by new buildings, that puts even greater pressure on ensuring that adaptations are made to existing buildings. We hope that fairly soon the Government will have made progress on building regulations for shops and offices. That will be a great step forward. When the provisions move forward even further to take in auditoria and places where people meet, we shall have made provision for new buildings. But that still leaves the vast majority of buildings untouched, and the likelihood of us being able to bring in regulations to enforce changes in existing buildings is somewhat remote.
Therefore, we must depend on the good will of those who own and manage existing buildings to make the necessary adaptations to enable disabled people to get in and out. Ramps are a small part of the total facilities that need to be provided. Disabled people should also be able to move freely within buildings. Corners should not be too sharp for wheelchairs to go round and doors should not be too narrow. Toilets for the disabled should be provided. In fact, most of the provisions defined by British Standard 5810 are the basis on which to act if we want to define the areas of provision for disabled people. Substantial costs are involvwed in such adaptations, and they will be even higher if VAT is added.
The Government have from time to time been criticised for their lack of speed in making progress over access to buildings for disabled people. If VAT is charged for adaptations to buildings, disabled people will feel that the Government are not making progress in the right direction rapidly enough, and are even moving backwards. There will be an additional disincentive for the owners of buildings to make these changes.
I appeal strongly to the Minister to accept these amendments in their entirety. He should not simply do so in favour of registered charities. The hon. Member for Exeter has described the position of registered charities. We are dealing with only one aspect of VAT in respect of registered charities, but that aspect can most easily be accommodated within the provisions of the Bill. We should also amend the Bill to allow incentives for adaptations to access into buildings and dwellings for disabled people.
The provision for changes in local authority-owned dwellings can be taken care of, as the hon. Member for Exeter has mentioned. It is part of Government policy, which is supported by all parties in the House, to have maximum integration of disabled people into the community, and to ensure that barriers are not put against them. Being integrated into the community means living in ordinary houses in ordinary neighbourhoods. That should be facilitated by every possible means.
Adaptations can be made to a person's home to enable him or her to remain there rather than to go into institutional care or into specially designated houses built by local authorities. It is advantageous to enable families

to remain in their normal environment in their homes and area. That objective is shared by all hon. Members. Therefore, the addition of VAT to the cost of work that is undertaken to make that possible for such families is a step backwards and should be avoided.
Note (4)(ii)(c) of amendment No. 7 would allow the exemption of VAT on costs incurred in the adaptations of dwellings to meet the needs of disabled people. The three categories taken together are a worthwhile change to the Finance Bill. I hope that the Minister will reply in a positive manner. Such a response would be welcomed outside the House

Mr. Cormack: I endorse what has been said by my hon. Friend the Member for Exeter (Mr. Hannam) and by the hon. Member for Caernarfon (Mr. Wigley). They both spoke from deep knowledge and with a quiet passion. For me, their case was utterly convincing. I hope that my hon. Friend will feel as I did.
I rise to speak to amendments Nos. 8 and 9 in my name. I revert to the ca se that was made briefly but very forcefully by the hon. Member for Berwick-upon-Tweed (Mr. Beith). I infinitely regret that we need to have this debate at all. It is tragically ironic that we are having it in the very week that York minster has been so devastated by fire.
I can claim credentials of consistency in this matter.. in that, before VAT was even introduced, I waited upon the then Minister and sought to persuade him not to impose it on repairs to historic buildings. It seemed to me that that case had real merit, but in spite of the fact that I and colleagues in both Houses of Parliament have repeated the case time after time, successive Chancellors have been impervious to our pleas and have done nothing.
That is nonsense. I speak not only as someone with a great personal interest in these matters but as one who until recently was a member of Historic Buildings Council and who has for many years been a trustee of the Historic Churches Preservation Trust. I have always felt extremely angry when we have been making grants, either from public money in the case of the Historic Buildings Council, or from private money in the case of the trust, to know that the Chancellor was taking first 10 per cent., then 8 per cent. and then 15 per cent. That is utterly indefensible. Indeed, it becomes absurd when we are dealing with public money and taking away with one hand what we are giving with the other.
I wish to deal in some detail with these amendments, but before doing so I wish to refer again to York. I should like a categorical assurance from the Minister that there will be no question at all of the work at York minster being VAT-ed. That would be monstrous—

Mr. Wrigglesworth: These are repairs

Mr. Cormack: The hon. Gentleman interjects, "Repairs", and I fear the answer that I shall receive. However, I seek art unequivocal answer from the Dispatch Box. If it is 15 per cent. on top of whatever has to be raised, that is monstrous.
The figure of £1 million which has been bandied about is, I believe, hopelessly optimistic, given that the repair of the ceiling in another place cost three times that amount. It would be sanguine in the extreme to expect the repair at York minster to leave any change from £5 million, and I would not be a bit surprised if it went above that figure.
I revert to the amendment. A bad and indefensible situation was made totally intolerable by this year's Budget. Of all the things which the Chancellor did, many of which I applauded and some of which I criticised, this was the worst. Two aspects of the damaging effects have already been touched on — the effect on historic buildings and the effect on the disabled. Because of the eloquent pleas made by my hon. Friend the Member for Rutland and Melton (Mr. Latham) in Committee, the Minister—I pay tribute to him for it—promised to think about the matter and to try to come up with a concession. The House owes a debt both to my hon. Friend the Member for Rutland and Melton — I am sorry that indisposition prevented my being there to support him—and to the Minister for his response.
Although I do not for a moment doubt the Government's good intentions in seeking to meet the points that were made, the blunt fact is that they have made the situation only marginally better than it was when the Chancellor sat down after delivering his Budget speech.
I do not ask the Minister merely to take my word for that, although I hope that he will, as he is a fully subscribed member of the all-party heritage group, which I have the honour to chair, and is an attender at our functions. I therefore hope that he will take my word for it. But I pray in aid the Association of District Councils and, much more importantly — I know that it will forgive me for saying so, even though I am one of its vicepresidents—the new Historic Buildings and Monuments Commission. That body was set up by the Government to take over the work of the Ancient Monuments Board and the Historic Buildings Council, and was given new autonomy and a wider role. It has several commissioners of great expertise. I think of people of the experience and breadth of knowledge of Mr. Jeremy Benson, who is known to many hon. Members for his indefatigable beavering away at producing briefs for amendments in Committee. I hazard a guess that he is not a million miles away from where I stand.
9.15 am
Those commissioners, led by Lord Montagu and with the Duke of Gloucester as deputy chairman, amount to a pretty high-powered and impressive group of people. They have shown their autonomy and have flexed their muscles by telling my hon. Friend the Minister that he has made a terrible mistake which he has not yet put right. Hon. Members in all parts of the House will understand my sadness and my reason for wanting to say, "Away with VAT on all repairs and alterations to historic buildings —and if not all, at least those owned by charities". That is what I have campaigned for over the years. However, that is not possible within the terms of the amendments before us. Nevertheless, within those terms, we can put right the great wrong that my right hon. Friend the Chancellor of the Exchequer did when he delivered his Budget Speech. I sincerely hope that my hon. Friend the Minister will heed my words.
I should like to quote briefly from some notes and a letter sent out this week by the Association of District Councils. I dare say that I am not the only hon. Member to be in possession of a copy of the letter that was sent to the Minister. Doubtless he has read it with interest. The ADC, which is the body with real practical responsibility

in this area, makes several extremely telling points. For example, it says that, although the Government's amendment will do something, it will leave a very real problem in conservation areas. That matter has already been touched on by the hon. Member for Berwick-upon-Tweed. It will, of course, leave a very real problem, in particular, for those buildings that are not listed. The whole concept of conservation areas will be torpedoed if we do not extend proper protection to all the buildings within such areas.
As the proposals of my right hon. Friend the Chancellor stand, there is no such protection for any building in a conservation area that is not listed. As the ADC says:
The imposition of VAT on alterations and improvements to make them suitable for continued use will undermine long-established policies designed to maintain and enhance the character in Britain's conservation areas.
Those of us who are privileged to have conservation areas in our constituencies can testify to the accuracy of that observation.
The ADC also says:
The Government's amendment will also mean that VAT will be payable on alterations and improvements to listed buildings which do not require listed building consent. Particularly significant in this category are internal alterations and improvements to grade II buildings—it is precisely this type of alteration which is essential if uses are to be found for these buildings.
That point has already been touched on, and it cannot be emphasised too strongly or underlined too many times.
The ADC concludes:
The overall result of the Government's proposal is that rehabilitation projects generally will be less attractive and consequently demolition/new build will be relatively more attractive. Or, more likely, the potential investor will abandon such projects and go elsewhere—giving a further twist to the spiral of decay in Britain's architectural heritage.
Some of us have had letters from Sir Lawrie Barratt who says that some projects that we all applaud could not have gone ahead if this measure had been in force a few months ago and that some projects will have to be abandoned.
We all know of constituency cases that will be affected. I am president of the Staffordshire historic buildings trust and I have sent the Chancellor details of projects that would be at risk.
I implore my hon. Friend the Minister of State to do something to put right the inadvertent wrong that the Government have done. I accept that it was inadvertent, but, even with the Government's welcome concession in the amendment, we are left with what could amount to a charter for the bulldozer and the demolition man—the sort of thing about which the late John Betjeman would have written a lament. How much we owe him for opening the eyes of the nation and how sad it is that the Government appear to have their eyes closed. This is an all-party issue and the Government's record has been commendable in many respects. Their action on Calke abbey has already been mentioned. I implore my hon. Friend the Minister of State to heed the words of the ADC and to listen to the HBMC commissioners who have been appointed to give the sort of advice that I am expressing. It is nonsense to appoint men and women of experience and expertise and to ignore them when they say, "You will do great damage." If our amendments are accepted, at least we shall revert to the status quo and we can recommence the battle to have this VAT nonsense done away with. I urge my hon. Friend to give a positive reply.

Mr. Robert Litherland: I wish to register the anxieties of Manchester and all the major cities in the country. This part of the Bill requires scrutiny and amendment.
Manchester city council is worried that the imposition of VAT will impede all plans for refurbishment, not only of listed buildings, but of all buildings in the inner city. Poor cities such as Manchester have embarked on massive programmes of alterations, modernisation and refurbishment. The proposed imposition of VAT raises fears about the progress of such redevelopment plans.
A problem has arisen over an urban development grant scheme of conversion by a housing association of Granby house in Manchester, a grade II listed building. That former warehouse is being converted into 62 flats for sale. The project has been approved by the city council and accepted by the Secretary of State for the Environment. It was assumed that VAT would be waived.
The Chancellor wrote to my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Moms):
The sale or long lease of a listed building by the builder or developer will be zero-rated if … more than 75 per cent. of the cost of the substantial reconstruction incurred is attributable to alteration work for which listed building consent has been given.
That sounds fine, but Granby house has been inspected by the local VAT office which has identified works totalling about £407,000 that will be liable to VAT amounting to £61,185. The works include repairs to the roof, external repointing, replacement of internal plumbing and electrical services and repainting.
It is nonsense, in that if it had been newly painted, VAT would not have been charged. Because an old surface was painted over, VAT was chargeable. Those elements amount to just over 25 per cent. of the contract and therefore VAT is payable.
Any additional financial burden must be imposed on what is already a finely balanced project. The cost can only be met from a public sector grant and so part of it will fall on the local authority. The terms of the Chancellor's concession are narrower when applied to an actual scheme than when they are on paper. Next week the various committees of the town hall of Manchester will consider that matter. It is likely that further representations will be authorised.
It appears that the distinction being made by the local VAT inspectorate between repairs and refurbishment within major refurbishment projects for listed buildings, many of which are empty and run down, is imprecise and open to varying interpretations, especially in a city, such as Manchester, where there is an important heritage.
Many listed buildings require refurbishment. That will create an atmosphere of considerable uncertainty. If such schemes are given priority, all the necessary works for the schemes should be exempted from VAT. The imposition of such charges and charges for future refurbishment works will upset the fine financial balance of these schemes. They are developed and processed over a long period by all the parties involved, including the Department of the Environment.
The city council believes that it must add its voice to other representations which have been made against the proposal. I urge the Government to consider refurbishment schemes of buildings, such as are found in the inner-city area of Manchester and elsewhere, and to exempt them from this proposed charge. Failure to do that will produce

an effect which is diametrically opposed to the Government's policies on the inner city. It will appear to be an abrogation of their responsibility

Mr. Neil Hamilton: I welcome the Government's concession on VAT for listed buildings, but I agree with my hon. Friends that it does not go far enough to reach its object. I cannot meet the baroque rotundity of my hon. Friend the Member for Staffordshire, South (Mr. Cormack), but he put the case well. I shall make two or three technical points to explain how I believe the new legislation can be improved and made to work through my amendments to amendment No. 6.
A test for qualifying for relief is that of substantial reconstruction, which is defined in the clause. The test can be met in one of two ways. One can meet the three quarters test—that three quarters of the cost of the scheme must be approved alteration work, for which listed building consent has been obtained.
The evidence given to me by those who practise in this area shows that that is too high a proportion for most of the works we hope to exempt from VAT.
It is vital that the 75 per cent. proportion is reduced, or developers will inevitably be driven to the damaging alternative test to ensure that their schemes are zero-rated. The alternative test is to gut the building completely sc that only the exterior walls and features remain. I cannot image a more destructive alternative nor a more destructive incentive to developers to go the whole hog and rob an historic building of its real character.
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I beg my hon. Friend to accept the logic of my remarks on this matter and, at the very least, to say, in response to the debate, that if he cannot take these amendments on board today, he will keep an eye on this matter from the start of the new legislation. If evidence becomes available, as I am convinced it soon will, that there is an incentive to over-restore and to destroy the character of buildings, I trust that he will immediately introduce changes to reduce the damaging effect of the legislation.
The Historic Buildings and Monuments Commission has been in touch with my hon. Friend and provided figures from Derbyshire Historic Buildings Trust to back what I have said this morning. It is not just airy flannel about expectations. Concrete information is available. The Derbyshire trust says that recent schemes that it has carried out, which met the previous non-statutory test of substantial reconstruction, failed by a large margin to meet the new three quarters test. The only scheme that came anywhere near meeting the new test involved the reconstruction of a roofless ruin without floors. That is also borne out by evidence of a major scheme for the conversion of a derelict historic mansion to provide flats. All those schemes, whether to provide housing or offices, should qualify as reconstruction and be zero-rated, because they are producing new accommodation by the creative restoration and adoptation of disused and abandoned historic buildings.
I urge my hon. Friend the Minister to consider, as an alternative, retaining the existing non-statutory test, which is the import of the amendment in the name of my hon. Friend the Member for Uxbridge (Mr. Shersby). If he is not minded to accept my amendment, perhaps he will consider that one.
Another problem arises with a VAT leaflet, which was admittedly produced in a hurry because this business has


come upon us at the last minute. I agree with my hon. Friend the Member for Staffordshire, South that that is to be regretted. The VAT leaflet, which gives advice to builders on how to qualify for exemption, is wrong in many places and requires thorough revision. It contains a serious error that could torpedo the scheme, in so far as it could be said to work at all. I am sorry to weary the House with the detail, but it is vital to inform the House of this. In page 2, paragraph 2, the Customs and Excise seems to be making a distinction between the need for and the granting of listed building consent, as though one could grant listed building consent without a need for it. The import of the paragraph is that the Customs and Excise will set itself up as the arbiter of what qualifies for listed building consent, not the local authorities upon which that duty is devolved.
I urge my hon. Friend to clarify the matter this morning and to say that there will be no attempt by the Customs and Excise to undermine the existing listed building consent system in the way that this leaflet does.
There are many other technical points which I have previously discussed with my hon. Friend, but I shall not detain the House longer at this hour. I hope that I shall be given assurances on the points that I have raised

Mr. Jim Craigen (Glasgow, Maryhill): I wish to be associated with the concerns that have been expressed by hon. Members about the impact of VAT on historic buildings and measures to adapt premises for the disabled. I am particularly worried about the imposition of VAT for the first time on home improvements, particularly in view of the work that has been done to regenerate inner-city areas by the rehabilitation of houses.
The changes which the Government propose mean that it will be easier to bring in the bulldozer again to the inner-city areas because there is no VAT on new building or on demolition work, though VAT will be attached to the restoration of many inner-city dwellings. We must not forget that the heritage takes different forms. Commendable though it is to restore the heritage and improve our stately homes, there are thousands of ordinary homes throughout the country where the occupiers would like to make them more stately as premises in which to live.
Although the Chancellor is proposing a most significant change, what the Government will receive by way of revenue seems to represent a false economy. Figures have been advanced to suggest that for every additional £1 million spent by the Government on construction, we would create another 65 jobs in construction plus anything between 70 and 300 indirect jobs for architects, building suppliers and so on. We could also have another 45 rehabilitated homes.
I was disappointed that amendment No. 191 was not selected because it would have dealt with the problems facing housing associations, particularly in the west of Scotland. In recent correspondence from the Minister responsible for housing at the Scottish Office, he agreed with the figure put forward by the housing associations as to the loss to the rehabilitation programme in Scotland arising from the Government's proposals. The Minister said that, at £4 million, the figure was about right. It represents a sizeable underhand cut in the allocation of

funds for many inner city projects. I hope therefore that the Government will think again about the impact of VAT on home improvements

Mr. Michael Latham: I begin by declaring my interest as a builder. The amendments standing in my name would alter the proposals of my hon. Friend the Member for Staffordshire, South (Mr. Cormack). I wish to express my sincere thanks to the Minister of State for the positive way in which he responded to my original amendments in Committee of the whole House on 30 April and the detailed proposals which he put forward in his written answer to me on 18 May.
It is essential that there should be safeguards to protect the heritage. It has enough enemies already, without giving them a financial incentive to knock down Britain's street scene at the same time. I accept, reluctantly, that the concession must be tightly drawn to minimise loss of revenue. I also agree with the Government, for example, that His Grace the Duke of Omnium should not have zero rating for central heating or double glazing for Omnium castle if Joe Bloggs or Dave Spart down the road must pay for it for 35 Acacia road. That is why I support amendment No. 9.
The VAT leaflet is wrong about the listed building consent, which applies not only to structural works but to anything which affects the character of the building. Planning officers cannot be expected to implement VAT laws or vice-versa. The obvious way to deal with the problem is to accept amendment No. 9, to let the exemption from VAT be triggered by producing a listed buidling consent and then to let the Minister make orders under the VAT legislation simultaneously with Royal Assent of this measure, which would exclude double glazing, fitted kitchens, central heating and other luxuries which would benefit the standard of amenity of his grace the Duke of Omnium castle but would mean that the structural work, which would be important to the building rather than to his grace personally, would be zero rated and the heritage preserved.
Four of my amendments to amendments—(a) and (c) in each case — are purely technical and have been overtaken by the tabling of amendment No. 5 by my right hon. Friend the Chancellor of the Exchequer. If my right hon. Friend were to accept the substantive amendments he would need to accept my sub-amendments as well.
Amendment (b) to amendment No. 8 is more substantial. My hon. Friend the Member for Staffordshire, South wishes to reduce the Government's three quarters test to one of two thirds. He wants also to eliminate what is called the gutter's charter. That is the purpose of amendment No. 8. Over the weekend it became increasingly clear to the Historic Buildings and Monuments Commission — I pay tribute to the outstanding work that has been done on the Bill by Jeremy Benson and Peter Rumble — that a reduction to two thirds would not be enough. My sub-amendment would reduce the test to one half. The figures that I shall present to the House substantiate beyond question the need to make this further concession.
The House will recall that, even after my amendment, the test would require that 50 per cent. of the work—possibly including civil engineering site work such as drives and drains — would have to be on alterations needing and having obtained listed building consent. I shall give the House a couple of figures which have been


referred to briefly by my hon. Friend the Member for Tatton (Mr. Hamilton). The figures come from the Derbyshire historic buildings trust. Under the old 50 per cent. test the railway cottages at Derby would have passed at 55 per cent. Under the Government's new 75 per cent. test they would fail at 36·5 per cent.
Another example is No. 1, The Dale, Wirksworth. Under the old 50 per cent. test, the work would have come to £11,500 and the property would have passed at 34 per cent. The theoretical test result under the new 75 per cent. test would have been a failure because the building would have obtained only 53 per cent. Another example in Newcastle-under-Lyme would have passed at 55·2 per cent. under the old 50 per cent. test but would fail substantially under the new test because it would obtain only 26 per cent.
I suggest to my hon. Friend the Minister that these are serious figures that show the need for a further concession. We do not want developers or restorers to opt for the gutting alternative unless the building is already a derelict shell. We certainly do not want any financial incentive for them to do so.
My hon. Friend the Minister of State, who received Mr. Benson, my hon. Friend the Member for Tatton and myself most courteously on Monday at the Treasury, wants genuinely to help the heritage. He knows that the VAT leaflet will have to be redrafted anyway as it is incorrect and he knows also that there has been some misunderstanding between Customs and Excise and the Heritage Commission. If he makes this small further concession today, honour will be satisfied all round and he will have demonstrated fully his determination to keep the spirit as well as the letter of the concession that he promised to my major amendment, which was supported on both sides of the House two and half months ago

Mr. Stephen Ross: I shall be brief in supporting what the hon. Member for Rutland and Melton (Mr. Latham) has said and in urging the Minister to accept the amendments, which I consider to be essential. I am slightly strengthened in my feeling that he will be prepared to do so because when he moved the Government amendments and opened the debate he said that he was prepared to listen to the debate. I hope that he will do so.
Two or three years ago I formed a building preservation trust on the Isle of Wight, which we based on the Derbyshire trust. The trust has proceeded slowly and has raised about £70,000. It is engaged in its second alteration, having purchased a house of historic interest in Ryde which is to he converted into six flats. I do not believe that we shall be able to proceed with that project if the 75 per cent. rule remains. We shall be providing accommodation where it is badly needed at reasonable prices. If the amendment remains and we do not have a 50 per cent. rule, we shall probably be priced out. We have heard the example put by the hon. Member for Staffordshire, South (Mr. Cormack). Surely we must encourage what Sir Lawrie Barratt has been doing in making good use of some of our stately homes throughout the United Kingdom. I press upon hon. Members the great need for the amendment to be taken on board.

Mr. Michael Shersby: I rise to speak to my amendment (c) to amendment No. 6. As my hon. Friend the Member for Staffordshire, South (Mr. Cormack) said,

schedule 6 is an "inadvertent wrong", and that is a good description. For some weeks, I have corresponded with my hon. Friend the Minister of State and other colleagues in an attempt to convey the deep feeling about the way in which the legislation will affect important buildings in my constituency. I am sure that his Department is taking an active interest in those buildings.
Under the existing rule, the cost of reconstruction work would be at least 50 per cent. of the cost of rebuilding the building in its present form. The rule was designed to allow zero rating for the sale or long lease of an existing building when it was being substantially reconstructed—in short, the builder or developer was doing work on such a scale as to amount to something not very different from new construction.
In the case of listed buildings, with the inherent restrictions imposed upon them, that was often difficult for the builder to achieve. The new 75 per cent. rule, which is theoretically intended to be broadly equivalent in effect to the existing 50 per cent. rule, penalises the restorer further. It would offer a greater disincentive to the restoration of architecturally or historically important buildings, since, by definition, the constraints on alteration or reconstruction work on such a building are considerable. They often prohibit the extent of work necessary to qualify for zero rating, and therefore ensure that VAT is irrecoverable, in most cases thereby substantially reducing the cost of the restoration project.
I hope that my hon. Friend the Minister will listen carefully to my points, because the problem is exemplified by Swakeleys house, a 17th century, grade 1 listed Jacobean mansion in my constituency, which is being saved from dereliction and decay and is being reconstructed to the highest standards under the careful scrutiny of the listing authority. The Swakeleys house project is the culmination of five years of hard slog by a group of my constituents .who have taken this amazing project on board. The project has been supported by people throughout this land from the very highest to the very lowest. It has the support of local government and has received encouragement from my right hon. Friend the Secretary of State for the Environment. I wish that I had similar encouragement in the replies that I received from my hon. Friend the Minister of State in trying to deal with this difficult matter.
Although it has been confirmed by the local Customs and Excise office that the restoration works fell comfortably within the old 50 per cent. test, it is apparent that under the new legislation the works which many laymen would regard as most substantial reconstruction would appear to fail the new 75 per cent. criterion. The project qualifies, therefore, under the new formula, even though, theoretically, the proposed new group A of the zero rating schedule is intended to be roughly equivalent in its effect to the 50 per cent. test for reconstructed buildings. Restorers of major listed buildings will be unable to reclaim the tax on the supply and disposal, and will be in a much worse position as a result, even if they had qualified under the old rule. That must surely be contrary to the spirit in which my hon. Friend the Minister introduced his amendment.
The owners of such a building are correctly forbidden to gut it. That point was made well by my hon. Friend the Member for Staffordshire, South. They are therefore unable to meet the criterion. I repeat, they are unable to do so. In fact, ironically, the more important the building


is architecturally, and the more protected it is, the less likely it is that planning permission will be obtained for work that involves 75 per cent. alterations.
I cannot help wondering how the Treasury, when it framed the amendment, thought that planning permission could be obtained for 75 per cent. alterations. It seems that there is a lack of understanding among the officials and Ministers concerned about what the work involves. They are setting a test that it is impossible to meet. As my hon. Friend and others have said, such alterations virtually amount to gutting. The developer or restorer is therefore in a Catch 22 situation.
The listing authorities will not permit the level of reconstruction required to qualify for zero rating and as a result a 15 per cent. tax penalty will be incurred, which cannot be reclaimed. I am sure that that cannot have been intended by my hon. Friend the Minister when he framed the amendment. Much of the work that is essential in the restoration of listed buildings, such as Swakeleys house, would not contribute towards meeting the 75 per cent. tax, although the restoration standard required by the listing authorities and the potential user of the building demands that it be done to first-class standards.
For example, extensive and expensive renovation of external leadwork, decorative external rendering and mural painting would weigh against the restorer in this situation. While the inability to reclaim VAT is a severe problem for the developer, the percentage of total revenue obtained from restoration of such listed buildings for the nation will in fact be minuscule in the context of the revenue earned from the total catchment area at which it is directed. When he replies, perhaps my hon. Friend the Minister will be kind enough to tell the House what the difference in revenue will be, taking into account the effect on buildings, such as Swakeleys house and the many other wonderful historic buildings to which hon. Members on both sides of the House have referred during the debate.
This relatively minute amount in the context of the nation's tax revenue will be dramatically detrimental to securing the future of the nation's decaying architectural heritage of listed buildings since, for the individual restorer, it is material and significant. The penalty on the restorer of now being unable to reclaim his VAT under the proposed new legislation, even if he originally met the 50 per cent. rule, could, and in many cases will, discourage such restorers from contemplating or undertaking the type of work that is being carried out in my constituency and elsewhere throughout the country because the added tax penalty incurred can amount to several hundred thousand pounds on one project alone. I put that case to my hon. Friend, referring particularly to Swakeleys. There might be an additional tax penalty of several hundred thousand pounds. Such a penalty is just what is needed to torpedo a project that will save a building that is quite unique. Such a penalty will not be warmly welcomed by my constituents, who have worked so hard and for so long for a fine objective.
This further discouragement will inevitably lead restorers to seek extensive reconstruction, or even full or partial demolition, to qualify and will provide a greater financial argument against the listing authorities, the objectives of which are, of course, to encourage repair maintenance without substantial alteration or reconstruction.
If it is not possible totally to zero rate the supply of any listed building, the test for whether a listed building has been substantially reconstructed should be no more onerous than in the past. I ask my hon. Friend to take that point on board.
Attempts to put into statutory form the tests that the Customs and Excise previously applied in relation to whether any building had been substantially reconstructed are contained in my amendment (c). I hope that the Minister will be able to promise some relief. I should make it clear to him that the strength of feeling, not just on both sides of the House but in our constituencies, is such that, if he cannot give a helpful reply, it may be necessary to test opinion in the House so that those of us who have worked so long for our heritage will know which hon. Members feel strongly about this matter and are prepared to vote accordingly

Mr. Tam Dalyell: Having been a member of 11 Finance Bill Committees, I know how irritating it is when hon. Members who were not on the Committee breeze in at the last moment and take up time in debates on the Floor of the House. Therefore, I shall be brief.
As the House knows, I have connections with both the Historic Buildings Council in Scotland through my wife's membership, and the Scottish National Trust. Heritage interests in Scotland are extremely concerned about the 75 per cent. test. I have also given notice, as no doubt have other hon. Members, that I intend to refer to the Benson memorandum.
The 75 per cent. test is complex and may prove inequitable in operation or impossible for developers to achieve. Are the Government sure that it is workable at all? Regardless of whether it is desirable, are the Government sure that it is workable? Above all, we need a simple test. The non-statutory 50 per cent. rule that used to be applied in deciding whether a refurbishment scheme could be treated in effect as a new development may have caused difficulties, but the underlying principle was much fairer. The answer must surely be not to legislate on the lines of the Government's two tests but to retain the non-statutory interpretation of what is to be treated as a substantially reconstructed building. We believe that that is far more realistic. A sensible basis for such a test would be that the total cost of refurbishment and restoration—that is, repairs and alterations, new work and fittings—should be at least half the cost of providing a similar amount of new accommodation.
Hon. Members who are suspicious of the power of the heritage lobby should reflect that funds provided by the State in this way, which may be substantial—I shall not repeat the comments made by the hon. Member for Rutland and Melton (Mr. Latham) to whom I listened carefully—create labour-intensive employment, as my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) pointed out. It is a crying shame that skilled craftsmen, who could contribute greatly to the heritage, are out of work. Therefore, if there is any feeling that the formidably organised heritage lobby is pushing at doors when others less effectively organised have an equally good case, it should be remembered that in terms of the employment of skilled people the amendment is absolutely legitimate and desirable.
To their credit, Conservative Members have spoken out on this. I hope that if the Minister cannot promise a speedy review within the next fortnight or so, or better still a


decision on the 50 per cent. test here and now, Conservative Members will press the matter and join us in the Lobby.

Sir Hugh Rossi: I shall not detain the House for more than a few moments as I know that hon. Members are anxious to get to bed after a very long night, but I must add my voice to those of my hon. Friends who have urged my hon. Friend the Minister to make a concession in favour of the disabled and the charities working for them. My hon. Friend the Minister will recall that I raised this with him in Committee on 30 April. Since then, as the thick file in my hand betokens, I have engaged in correspondence with him on these matters. I have written to him on behalf of the Cheshire Homes, the Jewish Blind Society, the Methodist Homes for the Aged, the Muswell Hill Society of Friends and the Abbeyfield North London Society, all of which will lose many thousands of pounds if VAT is imposed upon the adaptation of buildings for the disabled and the aged.
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My hon. Friend's response has been very unsatisfactory. He does not seem to be concerned about the merits or the needs of those bodies or of the disabled. He seems to be concerned primarily to maintain the neat symmetry of this tax and to ensure that no exemptions are made that might spoil the way in which the tax would operate.
My hon. Friend seems to overlook the fact that this fiscal imposition upon charities will hinder their work. The more money they have to pay to the Exchequer, the less they will be able to devote to the needs of the most disadvantaged sections of our community. The Government's policy is very short-sighted. Unless the voluntary organisations are given every assistance in carrying out their work, and are not impeded in doing it by fiscal impositions, the people whom they help will have to turn to society as a whole. They will have to look to the state—to the DHSS and to the local authorities. Even greater public expenditure will then be required because we all know from experience of these matters over many years that the voluntary organisations frequently perform these tasks much more efficiently—and always much more economically—than any organ of the state. I urge my hon. Friend to think again. Although I am reluctant to do so on such a matter, I will, if need be, join my hon. Friend the Member for Exeter (Mr. Hannam) and vote for his amendment

Mr. Robin Maxwell-Hyslop: What this debate shows is how little the Treasury knows about reality. The phrase "the price of everything and value of nothing" comes to mind once again. Until we hear my hon. Friend's reply, we shall not know whether Treasury Ministers realise what they will be doing if they turn down the amendment of my hon. Friend the Member for Exeter (Mr. Hannam). Do they realise that, although a ramp can be zero-rated, the facility to open the door cannot; that a downstairs lavatory can be altered to let a wheelchair in, but a lavatory upstairs cannot? 
I should like to believe that my right hon. and hon. Friends were not aware of this nonsense, but, after this debate, they will not be able to say that the regulations were drafted by officials who concealed from them their true effect. The purpose of debates such as this is to bring home to Ministers what the fine print means in terms of real life.
Because of constrictions of time, the whole meaning of the regulations has not been brought home to Ministers. A disabled person in a two-storey house may need a lift, but the installation of the lift will not be covered by the VAT concession. Did my hon. Friend's officials not tell him that, or has he been knowingly resisting pressure of the kind embodied in the amendment — knowing that VAT will be charged on the installation of a lift and on the alteration to the entrance of an upstairs lavatory to let a wheelchair in? Did my hon. Friend know about that when the regulations were drafted., or did he not? I should like a clear answer to that question. I prefer to believe that he did not know, but that certainly cannot be said at the conclusion of this debate

Mr. Tim Yeo: I wish to speak briefly in support of amendment No. 7.
My anxiety arises from the problem of VAT in relation to charities. As chairman of the charities VAT reform group, which is supported by more than 300 of the country's leading charities covering all forms of charitable activity, I have long pleaded with the Treasury to grant complete relief. I deplore the fact that the framing of the Budget resolutions this year have prevented our debating an amendment that would bring about such relief.
Amendment No. 7 goes part of the way to removing the burden of VAT on charities. The details have already been set out succintly by my hon. Friend the Member for Exeter (Mr. Hannam) and by the hon. Member for Caernarfon (Mr. Wigley). I shall not go into the figures, but I wish to stress that this year's Budget has greatly increased the burden of VAT on charities because the fiscal philosophy of the Government is to shift the burden of taxation from direct to indirect tax. I entirely support that philosophy, but it has a damaging effect on one group of organisations which are already exempt from income tax. When indirect taxes are raised, they get no compensating benefits as they pay no direct tax. Some charities will soon find it advantageous, from a tax point of view, to deregister because their VAT payments exceed the amount of tax that they can recover on convenants and investments. That would be absurd for a Government who believe in the voluntary sector being supported.
Buildings are a major item of expenditure for charities, and acceptance of amendment No. 7 would at least partly restore what appertained before the Budget, bad though that was. However, it would be a step in the right direction. I urge my hon. Friend to accept the amendment

Mr. Rooker: I rise merely to lend the support of the Opposition to any and all of these amendments.
We are extremely grateful to the Minister for coming back, following his original commitment in Committee on the Floor of the House. If ever there was an example of the force of the argument being targeted in by the brevity of speeches, it is the one to which we have just listened. The Minister has been made aware by hon. Members on both sides of the House of the arguments in regard to the disabled. I refer particularly to those advanced by the hon. Member for Berwick-upon-Tweed (Mr. Beith) and others.
There comes a time in the life of every Minister when he is at the Dispatch Box when he has a chance to grab the issue and act immediately. I do not think that hon. Members should have to wait for the Finance (No. 3) Bill, which will undoubtedly come later in the year, to deal with this matter.

Mr. Hayhoe: This has been an extremely useful and constructive debate. Points have been made succinctly. I shall try to reply to as many of them as I can, but I am sure that hon. Members realise that so many have been raised that I shall miss some, so I shall write to the hon. Members concerned about them.
The amendments and the speeches fall naturally into three groups. The first arises from the main point of the hon. Member for Berwick-upon-Tweed (Mr. Beith), which is covered by amendment (a) to Government amendment No. 6. It extends the concession considerably beyond listed buildings to include any building in a conservation area, any school, any village, community or church hall and any church that is not a listed building

Mr. James Couchman: I had intended to speak briefly in the debate but did not do so. On the latter point, I draw to my hon. Friend's attention the letter that he wrote to me last week resisting my blandishments on behalf of a church in my constituency. An appeal has raised about £50,000 out of the £70,000 needed for the brave modernisation programme, but is now faced with a bill for £10,500-worth of VAT to be raised by voluntary subscription. I ask my hon. Friend for a concession in this direction

Mr. Hayhoe: I know that others of my hon. Friends have also pleaded the case for an extension of the concession to conservation areas, but there are considerable difficulties, of which the first is cost. To make an extension of the listed building concession into the sectors suggested by the hon. Member for Berwick-upon-Tweed would cost tens of millions of pounds because of the numbers of buildings that would be covered. Secondly, a line has to be drawn somewhere, and I imagine there will always be arguments no matter where that line is drawn. The conservation areas are designated by local authorities according to fairly loose criteria. It seems undesirable to give relief from national taxation on the basis of what would be essentially local decisions, and decisions that could be taken purely with a view to the taxation implications

Mr. Cormack: Can my hon. Friend accept that what was annoying and inconvenient at 8 per cent. becomes penal and destructive at 15 per cent.? Can he also accept that in refurbishing the housing stock—I hate to use the phrase—we are doing a great service to the nation?

Mr. Hayhoe: I hope that, in his turn, my hon. Friend will appreciate that the concession that he is seeking would probably cost tens of millions of pounds. There is obviously only a vague idea as to how much advantage would be taken of it, and while we shall consider the points that have been made, I cannot hold out any hope of a change at this stage in the Budget which would lead to such a major cost.
There have been a series of speeches about the concessions on listed buildings that I have announced. There have been arguments about the criteria of the four walls, which have been described as a gutters' charter, although I should not accept such an emotive phrase. It has been said that this is a dangerous and bad thing, and a bad test to have within the concession. However, I believe that, for a variety of reasons, cases will occur where, although a building is listed, it has no internal features that are appropriate for preservation. Interiors can be destroyed

by fire, and I shall return to the tragedy at York minster later. There may have been damage by previous occupants or the interior may be unsuitable for the new purpose, for example, when warehouses are turned into flats.
Therefore, it seems to make sound sense to have a simple factual test, which would save businesses and the Customs and Excise detailed calculations and arguments about costing. The test is simple and practical, and has been welcomed by the British Property Federation. It has no sinister purpose and, in the Government's view, it can happily run in harness with the other cost-based tests, to which I shall return. That test contains the flexibility necessary to cater for buildings where the external features are retained.
If the overwhelming view of those concerned in these matters is, on reflection, that the four-wall test should be defeated, I shall take account of that. However, I hope that this debate will be considered and people will reflect on the points that have been made. I shall be open to observations on those counts.
The amendment tabled by my hon. Friend the Member for Uxbridge (Mr. Shersby) deals with reversion to the 50 per cent. test. When I announced the terms of the listed building relief, I said that the new 75 per cent. test, applied to the more restricted category of listed buildings, was intended to be roughly equivalent in its effect to the old 50 per cent. test. Comparisons are necessarily difficult. The 75 per cent. figure will be considered in the light of what has been said and the evidence that has been supplied.
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The issue at this stage is not the percentage but the basis of the test. The Government's conclusion is that the 50 per cent. test was faulty both in its conception and in its operation. It relied upon a comparison of the actual cost of reconstruction, excluding repair and maintenance, with the developer's estimate of the notional cost of erecting the building from scratch in its new form. It is always difficult for the Customs and Excise to verify such estimates, especially for historic buildings, as the estimates often fail to take into account the true cost of replacing old features with modern materials and using modern methods and skills. As a result, they are often unrealistically low.
My hon. Friend referred to the imaginative project in his constituency where the preliminary judgment is that it would have passed the 50 per cent. test but will fail the 75 per cent. test. In a letter I wrote last month, the company was invited to let the Customs and Excise examine the detailed figures. The details have just been received, and are being reviewed.
I want to refer to the relationship between the new 75 per cent. test and the old 50 per cent. test. In announcing the listed building concessions, I said that it was intended that the effect of the new test should be roughly equivalent to that of the old test. I outlined the unsatisfactory nature of the old test. Some six or seven cases, including the one mentioned by my hon. Friend the Member for Uxbridge and those referred to by my hon. Friend the Member for Rutland and Melton (Mr. Latham), have been put to me during the past week. It is said that all of them would have passed the 50 per cent. test but would fail the 75 per cent. test. They are being carefully examined to determine whether projects that are properly works of reconstruction,


as opposed to refurbishment for rehabilitation, would have passed the 50 per cent. test but would fail the 75 per cent. test.
I give the House the clear assurance that if I am persuaded that some lower figure than 75 per cent. is required to provide that broad equivalent that I promised to the House when I announced the detailed concessions, I shall return to the House by means of a Treasury order, subject to the negative procedure, to change the 75 per cent. figure. I stand by what I said—that the new 75 per cent. test should be broadly equivalent to the old test. If it is not, a change will be made. I hope that the House agrees that that is a reasonable and proper response to the points that have been put to me

Mr. Dalyell: I should like to ask the Minister about the time scale of that assurance. I am told by Jeremy Benson and many others that decisions are being taken here and now to demolish, in two or three weeks, rather than five or six months. What is the time scale of the Minister's decision-making?

Mr. Hayhoe: The time scale will be in relation to our examination of the examples that have been put to us, and some others. I hope that the response will be fairly speedy on the matter, and that what I have said today will be relayed to those who may have been acting precipitately in the light of a misunderstanding. I hope that they will recognise that I and the Government stand by what I said in the earlier announcement of the concession, and that the change will be made, if that is required. As the hon. Gentleman knows, it does not have to wait until after Parliament returns from the Recess. The procedure can be followed and be effective while the House is in recess. It will he subject to negative procedure when the House returns. There is no problem over the Recess

Mr. Cormack: I am most grateful to the Minister. What he says is helpful and important. Can he guarantee absolutely that there will be a maintenance of the status quo, so to speak, which is really the test, and that the matter will be resolved by the end of August at the latest?

Mr. Hayhoe: I shall stand on the words that I used, rather than those of someone else. I always think that that is better, so that misunderstandings do not arise. I used my words carefully in my announcement in the Parliamentary answer. I shall stand by that, and my reaction to the comments made during this debate.
Amendments (f) and (g) deal with the question whether alterations require and have obtained building consent. That is an important point. As my hon. Friend the Member for Tatton (Mr. Hamilton) said, it has given rise to genuine misunderstandings. Reference was made to the letters that have come to me from the Association of District Councils on this point. The letter said:
I hope you will feel able to say in the debate on report in line with your parliamentary answer on 18 May that zero rating will apply to any alteration that requires and has received listed building consent from the appropriate planning authority.
I gladly feel able to say that and to reaffirm what the association has asked. The association went on to ask—this is in relation to the point raised by several hon. Members—whether the Customs and Excise was setting itself up as an arbiter of listed building consent. The association asked whether
listed building consent, if that is given by a local planning authority, would be regarded as evidence that consent was required.

Generally, I accept that that would be so. It would only be in the most exceptional case that one might be led to believe that it would not. Generally, if consent has been given, that would be regarded as evidence that that consent was required and that the requirements of the amendment would then have been met

Mr. Neil Hamilton: I am a little worried that my hon. Friend considers that there might be exceptions to the rule that the grant of the certificate on listed building consent might not always be enough to satisfy the Customs and Excise that listed building consent was needed. My hon. Friend is not exactly giving me 100 per cent. of what I was hoping for

Mr. Hayhoe: One should always retain reservations for exceptional circumstances. On reflection, my hon. Friend may find that I have gone a long way to meet the requests that have been made.
My hon. Friends the Members for Exeter (Mr. Hannam) and for Hornsey and Wood Green (Sir H. Rossi) and the hon. Member for Caernarfon (Mr. Wigley) and others are in tune with the representations which have been made by the all-party disablement group and which have been conveyed to my right hon. Friend the Chancellor. My hon. Friend the Member for Exeter said that acceptance of the amendments would result in a small cost. I think that he estimated a cost of about £2 million to £3 million. Although it is not possible to say precisely how much the amendments would cost, I am advised that it is likely to be considerable as the reliefs are couched in wide terms. The best estimate that I can obtain is that the cost would run into tens of millions of pounds.
The Chancellor has put forward arguments to the all-party group about problems of definition and so on, but it is only fair to say that the Government's real objection, and the reason that the Chancellor has come to the decision that he has, albeit reluctantly because he accepts the wide and broad support within the House for the changes, has nothing to do with problems of administration or definition—those could be overcome; it is simply one of the revenue cost, which I have explained

Mr. Maxwell-Hyslop: My hon. Friend does not have to satisfy the House as to the quantum of the cost, but why the newly created cost should fall on the disabled rather than on the Treasury

Mr. Hayhoe: At this stage in the Finance Bill, as with all other amendments, it is necessary to look at the costs. My hon. Friend made a number of points that were clearly exercising his mind. He must have misunderstood the position. My hon. Friend the Member for Exeter gave the example of the widening of a doorway and the rehanging of the door as part of a necessary alteration to enable a disabled person to enter and he said that there would be difficulties over the zero rating. I must tell him that there would not. The installation of a stairlift for a disabled person, which we know from our constituencies are such a boon, will be zero rated. The widening of a door to an upstairs lavatory for a disabled person will be zero rated. Although the details of the concessions are as announced earlier this year, the Customs and Excise, with my authority, is always willing to consider cases on their merits where facilities are required other than on the ground floor—for example, where a disabled person


sleeps upstairs and the existing facilities are on the ground floor. The matter is not being interpreted pedantically but in a fairly relaxed way.
I must reiterate that the overall concession that has been asked for, and which I am sure will be asked for again in interventions which will now come, is one which the Chancellor has given careful consideration to and he has decided, regrettably, that he cannot agree with it on cost grounds.

Sir Hugh Rossi: As cost is the only factor which has determined the Chancellor's refusal to give this exemption to charities seeking to support the disabled, has the Chancellor taken into account the inevitable additional expense which will now fall upon public bodies to give the support that the voluntary organisations will no longer be able to give, and has he considered that many of the voluntary organisations will inevitably seek an increase in their section 64 grants from the Department of Health and Social Security in order to maintain financial viability? That is the other side of the public expenditure equation. Can my hon. Friend satisfy me that that has been taken into account, as cost is the only criteria?

Mr. Hayhoe: My hon. Friend seems to assume that amendments Nos. 4 and 7 are concerned only with charities. They go much wider than that. I ask him to reflect upon the breadth of the amendments, but I assure him and other hon. Members that all the points which have been raised will be taken very carefully into consideration. I have already shown, by a concession that was granted in advance of the request for it, that this matter concerns the Government. I am sure that there will be a continuing dialogue

Mr. Wigley: rose—

Mr. Hayhoe: I must return to something that I began to say about York minster. Building repairs, as will be realized—

Mr. Wigley: rose—

Mr. Hayhoe: May I finish the point that I am making? The building repairs are, of course, in law liable to VAT at the standard rate, but the Government recognise the unique character of York minster and will wish to give full consideration to the VAT position as the full cost and other relevant factors—for example, the extent of insurance cover—becomes clear. I do not think that I can go beyond that, except to say that very careful consideration will be given.
There have been criticisms of the Customs and Excise leaflet. I accept the criticisms of the leaflet, which was produced in a hurry. It will be necessary for it to be looked at again. I hope that it will be done after full consultations have taken place with the heritage movement and with the local authority associations.
On the basis of what I have said, I am sorry that I must recommend my hon. Friends not to accept any amendments other than Government amendments Nos. 1, 5 and 6.

Amendment agreed to.

Schedule 6

TRANSITION FROM ESTATE DUTY

Amendment proposed, No. 4, in page 140 line 14, leave out from 'substituted' to end of line 15 and insert—
'(a) in the course of the construction or demolition of, or
(b) in a case where Note (4) below applies, in the course of the alteration of. '.—[Mr. Hannam]

Question put, That the amendment be made:—

The House divided: Ayes 132, Noes 248.

Division No. 407]
[10.32 am


AYES


Alton, David
Kinnock, Rt Hon Neil


Ashdown, Paddy
Kirkwood, Archy


Ashton, Joe
Lambie, David


Barron, Kevin
Latham, Michael


Beckett, Mrs Margaret
Lawrence, Ivan


Beith, A. J.
Lewis, Ron (Carlisle)


Bell, Stuart
Lewis, Terence (Worsley)


Bennett, A. (Dent'n &amp; Red'sh)
Litherland, Robert


Bermingham, Gerald
Lloyd, Tony (Stretford)


Blair, Anthony
Lofthouse, Geoffrey


Boyes, Roland
Loyden, Edward


Brown, Gordon (D'f'mline E)
McKay, Allen (Penistone)


Bruce, Malcolm
McKelvey, William


Buchan, Norman
Maclennan, Robert


Callaghan, Jim (Heyw'd &amp; M)
McNamara, Kevin


Campbell-Savours, Dale
McTaggart, Robert


Cartwright, John
McWilliam, John


Clark, Dr David (S Shields)
Marek, Dr John


Clwyd, Mrs Ann
Mason, Rt Hon Roy


Cocks, Rt Hon M. (Bristol S.)
Maxton, John


Cohen, Harry
Maxwell-Hyslop, Robin


Cook, Robin F. (Livingston)
Meadowcroft, Michael


Corbyn, Jeremy
Mikardo, Ian


Cormack, Patrick
Millan, Rt Hon Bruce


Cowans, Harry
Mitchell, Austin (G't Grimsby)


Craigen, J. M.
Morris, Rt Hon J. (Aberavon)


Crowther, Stan
Oakes, Rt Hon Gordon


Cunliffe, Lawrence
O'Brien, William


Dalyell, Tam
O'Neill, Martin


Davies, Rt Hon Denzil (L'lli)
Onslow, Cranley


Davis, Terry (B'ham, H'ge H'l)
Park, George


Dewar, Donald
Patchett, Terry


Dixon, Donald
Pavitt, Laurie


Dubs, Alfred
Pendry, Tom


Duffy, A. E. P.
Pike, Peter


Eastham, Ken
Powell, Raymond (Ogmore)


Evans, John (St. Helens N)
Prescott, John


Ewing, Harry
Rees, Rt Hon M. (Leeds S)


Fields, T. (L'pool Broad Gn)
Richardson, Ms Jo


Fisher, Mark
Roberts, Ernest (Hackney N)


Foster, Derek
Robertson, George


Foulkes, George
Robinson, G. (Coventry NW)


Freud, Clement
Rogers, Allan


George, Bruce
Rooker, J. W.


Godman, Dr Norman
Ross, Ernest (Dundee W)


Golding, John
Ross, Stephen (Isle of Wight)


Gould, Bryan
Rossi, Sir Hugh


Greenway, Harry
Rowlands, Ted


Hamilton, James (M'well N)
Ryman, John


Hamilton, Neil (Tatton)
Sheerman, Barry


Hamilton, W. W. (Central Fife)
Short, Mrs R.(W'hampt'n NE)


Harrison, Rt Hon Walter
Skinner, Dennis


Hattersley, Rt Hon Roy
Smith, Cyril (Rochdale)


Hawkins, C. (High Peak)
Snape, Peter


Haynes, Frank
Spearing, Nigel


Hogg, N. (Cnauld &amp; Kilsyth)
Strang, Gavin


Holt, Richard
Straw, Jack


Home Robertson, John
Thorne, Stan (Preston)


Howarth, Alan (Stratfd-on-A)
Torney, Tom


Hughes, Robert (Aberdeen N)
Wainwright, R.


Jessel, Toby
Wallace, James


John, Brynmor
Welsh, Michael


Jones, Barry (Alyn &amp; Deeside)
Wigley, Dafydd


Kennedy, Charles
Wilson, Gordon






Winnick, David



Winterton, Nicholas
Tellers for the Ayes:


Wrigglesworth, Ian
Mr. John Hannam and Mr. Tim Yeo.


Young, David (Bolton SE)





NOES


Adley, Robert
Garel-Jones, Tristan


Alexander, Richard
Gilmour, Rt Hon Sir lan


Alison, Rt Hon Michael
Goodlad, Alastair


Amess, David
Gow, Ian


Ancram, Michael
Gower, Sir Raymond


Atkinson, David (B'm'th E)
Gregory, Conal


Baker, Rt Hon K. (Mole Valfy)
Griffiths, E. (B'y St Edm'ds)


Baker, Nicholas (N Dorset)
Griffiths, Peter (Portsm'th N)


Baldry, Anthony
Grist, Ian


Batiste, Spencer
Ground, Patrick


Bellingham, Henry
Gummer, John Selwyn


Benyon, William
Hamilton, Hon A. (Epsom)


Best, Keith
Hargreaves, Kenneth


Bevan, David Gilroy
Harris, David


Biffen, Rt Hon John
Havers, Rt Hon Sir Michael


Biggs-Davison, Sir John
Hawkins, Sir Paul (SW N'folk)


Blaker, Rt Hon Sir Peter
Hawksley, Warren


Bonsor, Sir Nicholas
Hayes, J.


Bottomley, Peter
Hayhoe, Barney


Bottomley, Mrs Virginia
Hayward, Robert


Bowden, A. (Brighton K't'n)
Heathcoat-Amory, David


Bowden, Gerald (Dulwich)
Henderson, Barry


Boyson, Dr Rhodes
Heseltine, Rt Hon Michael


Braine, Sir Bernard
Hicks, Robert


Brandon-Bravo, Martin
Hirst, Michael


Bright, Graham
Hogg, Hon Douglas (Gr'th'm)


Brittan, Rt Hon Leon
Hooson, Tom


Brooke, Hon Peter
Hordern, Peter


Brown, M. (Brigg &amp; Cl'thpes)
Howard, Michael


Browne, John
Howarth, Gerald (Cannock)


Bruinvels, Peter
Howe, Rt Hon Sir Geoffrey


Bryan, Sir Paul
Howell, Ralph (N Norfolk)


Buck, Sir Antony
Hubbard-Miles, Peter


Burt, Alistair
Hunt, David (Wirral)


Butterfill, John
Hunter, Andrew


Carlisle, Kenneth (Lincoln)
Jenkin, Rt Hon Patrick


Carlisle, Rt Hon M. (Wton S)
Jones, Robert (W Herts)


Cash, William
Jopling, Rt Hon Michael


Chalker, Mrs Lynda
Joseph, Rt Hon Sir Keith


Churchill, W. S.
Kellett-Bowman, Mrs Elaine


Clark, Hon A. (Plym'th S'n)
Kershaw, Sir Anthony


Clark, Dr Michael (Rochford)
Key, Robert


Clark, Sir W. (Croydon S)
King, Roger (B'ham N'field)


Clarke, Rt Hon K. (Rushcliffe)
King, Rt Hon Tom


Colvin, Michael
Knight, Gregory (Derby N)


Conway, Derek
Knight, Mrs Jill (Edgbaston)


Cope, John
Knowles, Michael


Corrie, John
Knox, David


Couchman, James
Lang, Ian


Cranborne, Viscount
Lawler, Geoffrey


Currie, Mrs Edwina
Lawson, Rt Hon Nigel


Dicks, Terry
Lee, John (Pendle)


Dorrell, Stephen
Leigh, Edward (Gainsbor'gh)


Douglas-Hamilton, Lord J.
Lennox-Boyd, Hon Mark


Dover, Den
Lester, Jim


du Cann, Rt Hon Edward
Lloyd, Ian (Havant)


Dykes, Hugh
Lloyd, Peter, (Fareham)


Edwards, Rt Hon N. (P'broke)
Lord, Michael


Emery, Sir Peter
McCurley, Mrs Anna


Eyre, Sir Reginald
Macfarlane, Neil


Fairbairn, Nicholas
MacKay, Andrew (Berkshire)


Fallon, Michael
Maclean, David John


Farr, Sir John
McNair-Wilson, P. (New F'st)


Favell, Anthony
McQuarrie, Albert


Fenner, Mrs Peggy
Malone, Gerald


Forsyth, Michael (Stirling)
Marland, Paul


Forth, Eric
Marshall, Michael (Arundel)


Fowler, Rt Hon Norman
Mather, Carol


Fox, Marcus
Mawhinney, Dr Brian


Franks, Cecil
Mayhew, Sir Patrick


Freeman, Roger
Merchant, Piers


Gale, Roger
Meyer, Sir Anthony


Galley, Roy
Miller, Hal (B'grove)


Gardiner, George (Reigate)
Mills, Iain (Meriden)





Mills, Sir Peter (West Devon)
Smith, Tim (Beaconsfield)


Miscampbell, Norman
Soames, Hon Nicholas


Mitchell, David (NW Hants)
Speller, Tony


Monro, Sir Hector
Spicer, Jim (W Dorset)


Montgomery, Fergus
Spicer, Michael (S Worcs)


Moore, John
Squire, Robin


Morris, M. (N'hampton, S)
Stanley, John


Morrison, Hon P. (Chester)
Steen, Anthony


Neale, Gerrard
Stern, Michael


Needham, Richard
Stevens, Lewis (Nuneaton)


Nelson, Anthony
Stewart, Allan (Eastwood)


Neubert, Michael
Stewart, Andrew (Sherwood)


Newton, Tony
Stewart, Ian (N Hertf'dshire)


Nicholls, Patrick
Stokes, John


Norris, Steven
Stradling Thomas, J.


Oppenheim, Philip
Sumberg, David


Page, Richard (Herts SW)
Taylor, John (Solihull)


Parris, Matthew
Taylor, Teddy (S'end E)


Patten, Christopher (Bath)
Tebbit, Rt Hon Norman


Patten, John (Oxford)
Temple-Morris, Peter


Pawsey, James
Terlezki, Stefan


Peacock, Mrs Elizabeth
Thatcher, Rt Hon Mrs M.


Percival, Rt Hon Sir Ian
Thompson, Donald (Caldor V)


Pollock, Alexander
Thurnham, Peter


Porter, Barry
Townend, John (Bridlington)


Powell, William (Corby)
Townsend, Cyril D. (B'herth)


Powley, John
Tracey, Richard


Prentice, Rt Hon Reg
Trippier, David


Prior, Rt Hon James
Viggers, Peter


Proctor, K. Harvey
Waddington, David


Raffan, Keith
Wakeham, Rt Hon John


Rathbone, Tim
Walden, George


Rees, Rt Hon Peter (Dover)
Walker, Bill (T'side N)


Renton, Tim
Walker, Rt Hon P. (W'cester)


Rhodes James, Robert
Wall, Sir Patrick


Rhys Williams, Sir Brandon
Waller, Gary


Ridley, Rt Hon Nicholas
Ward, John


Rifkind, Malcolm
Wardle, C. (Bexhill)


Roberts, Wyn (Conwy)
Watts, John


Robinson, Mark (N'port W)
Wheeler, John


Rumbold, Mrs Angela
Whitfield, John


Ryder, Richard
Whitney, Raymond


Sainsbury, Hon Timothy
Wiggin, Jerry


Sayeed, Jonathan
Wolfson, Mark


Scott, Nicholas
Wood, Timothy


Shaw, Giles (Pudsey)
Woodcock, Michael


Shelton, William (Streatham)
Young, Sir George (Acton)


Shepherd, Colin (Hereford)
Younger, Rt Hon George


Shersby, Michael



Silvester, Fred
Tellers for the Noes:


Sims, Roger
Mr. Robert Boscawen and Mr. John Major.


Smith, Sir Dudley (Warwick)

Question accordingly negatived.

Amendments made: No. 5, in page 140, line 15, at end insert—
'3A. In item 3 (supply, by a person supplying services within item 2 and in connection with those services, of certain materials etc. and services relating to them) after the words "item 2" there shall be inserted the words "of this Group or of Group 3A below".'.

No. 6, in page 141, line 10, at end insert—

'PART III

PROTECTED BUILDINGS

After Group 8 there shall be inserted the following—

GROUP 8A—PROTECTED BUILDINGS

Item No.
1. The granting by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.
2. The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.

Notes.
(1) 'Protected building' means a building which is—

(a) a listed building, within the meaning of—



(i) the Town and Country Planning Act 1971; or
(ii) the Town and Country Planning (Scotland) Act 1972; or
(iii) the Planning (Northern Ireland) Order 1972; or
(b) a scheduled monument, within the meaning of—

(i) the Ancient Monuments and Archaeological Areas Act 1979; or
(ii) the Historic Monuments Act (Northern Ireland) 1971. 
(2) For the purposes of item 1, a protected building shall not be regarded as substantially reconstructed unless the reconstruction is such that at least one of the following conditions if fulfilled when the reconstruction is such that at least one of the following conditions is fulfilled when the reconstruction is completed—

(a) that, of the works carried out to effect the reconstruction, at least three-quarters, measured by reference to cost, are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works, would, if supplied by a taxable person, be within either item 2 of this Group or item 3 of Group 8 above, as it applies to a supply by a person supplying services within item 2 of this Group; and
(b) that the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest;
and in paragraph (a) above 'excluded services' means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity.
(3) 'Approved alteration' means,—

(a) in the case of a protected building which is an ecclesiastical building which is for the time being used for ecclesiastical purposes or would be so used but for the works in question, any works of alteration; and
(b) in the case of a protected building which is a scheduled monument within the meaning of the Historic Monuments Act (Northern Ireland) 1971 and in respect of which a protection order, within the meaning of that Act, is in force, works of alteration for which consent has been given under section 10 of that Act; and
(c) in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of,—

(i) Part IV of the Town and Country Planning Act 1971,
(ii) Part IV of the Town and Country Planning (Scotland) Act 1972,
(iii) Part V of the Planning (Northern Ireland) Order 1972, or
(iv) Part I of the Ancient Monuments and Archaeological Areas Act 1979,

and for which, except in the case of a Crown interest or Duchy interest, consent has been obtained under any provision of that Part;
and in paragraph (c) above 'Crown interest' and 'Duchy interest' have the same meaning as in section 50 of the said Act of 1979.
(4) For the purposes of paragraph (a) of Note (3), a building used or available for use by a minister of religion wholly or mainly as a residence from which to perform the duties of his office shall be treated as not being an ecclesiastical building.
(5) Where the benefit of the consideration for the grant of a major interest as described in item 1 accrues to the person substantially reconstructing the protected building but that person is not the grantor, he shall be treated for the purposes of that item as the person making the grant.

(6) In item 2 'alteration' does not include repair or maintenance; and where any work consists partly of an approved alteration and partly of other work, an apportionment shall be made to determine the supply which falls within item 2.
(7) Note (2) to Group 8 above applies in relation to item 2 of this Group as it applies in relation to item 2 of that Group." . '—[Mr. Ian Stewart.]

Clause 26

DETERMINATION OF REDUCED RATE FOR BUILDING SOCIETIES AND COMPOSITE RATE FOR BANKS ETC.

Amendments made: No. 98, in page 15, line 44, leave out '1987–88' and insert '1988–89'.

No. 99, in page 16, line 17, leave out '1987–88' and insert '1988–89'.—[Mr. Ian Stewart.]

Schedule 8

INTEREST PAID ON DEPOSITS WITH BANKS ETC.

Amendments made: No. 100, in page 143, line 24, leave out 'quoted' and insert 'listed'.

No. 101, in page 143, line 26, at end insert—
'(dd) it is made by a Stock Exchange money broker (recognised by the Bank of England) in the course of his business as such a broker;'

No. 102, in page 143, line 34, leave out from first 'the' to 'in' in line 35 and insert 'appropriate person has declared' .

No. 103, in page 143, line 36, leave out 'that interest' and insert
`interest in respect of the deposit'.

No. 104, in page 144, line 14, at end insert—
'"appropriate persons", in relation to a deposit, means any person who is beneficially entitled to any interest in respect of the deposit or entitled to receive any such interest as a personal representative in his capacity as such or to whom any such interest is payable;'.

No. 105, in page 144, line 21, leave out
`of issue of the certificate'
and insert
`when the deposit is made'.

No. 106, in page 144, line 25, leave out 'certificate is issued' and insert 'deposit is made'.

No. 107, in page 146, line 11, leave out `13th March' and insert `6th July'.

No. 108, in page 146, line 26, after 'declaration', insert
`made before 6th July 1984'.

No. 109, in page 146, line 29, leave out '1986' and insert '1988'.

No. 110, in page 146, line 40, at end insert—
'(6A) Where a deposit which is a source of income of any person ceases to be a composite rate deposit, section 120(3) of the Taxes Act shall apply as if the deposit were a new source of income acquired by him immediately after it ceased to be a composite rate deposit. '.

No. 111, in page 146, line 41, leave out 'and (6)' and insert `to (6A)'.

No. 112, in page 147, line 5, after '3', insert '(3)(g) and'. —[Mr. Ian Stewart.]

Clause 29

TERMINAL GRANTS TO REPRESENTATIVES TO THE ASSEMBLY OF THE EUROPEAN COMMUNITIES ETC.

Amendment made: No. 14, in page 17, line 24, leave out from 'payments' to end of line 26 and insert
'under section 13 of the Parliamentary Pensions etc. Act 1984 (grants to persons ceasing to hold certain Ministerial and other offices)'. —[Mr. Moore.]

Clause 36

DEEP DISCOUNT SECURITIES.

Amendment made: No. 21, in page 24, line 19, at end insert—
(2A) Where securities which were issued on or before 13th March 1984 have been exchanged, at any time after that date, for new securities which would be deep discount securities but for this subsection, the new securities shall not be treated as deep discount securities if—

(a) the old securities would not have been deep discount securities if they had been issued after 13th March 1984;
(b) the date which is the redemption date in relation to the new securities is not later than the date which was the redemption date in relation to the old securities; and
(c) the amount payable on redemption of the new securities does not exceed the amount which would have been payable on redemption of the old securities. —[Mr Ian Stewart.]

Schedule 9

DEEP DISCOUNT SECURITIES

Amendments made: No. 23, in page 150, line 42, at end insert—
`3A. — (1) Section 15 of the Oil Taxation Act 1975 (oil extraction activities etc.; charges on income) shall apply in relation to income elements in respect of deep discount securities and paragraph 3 above as it applies in relation to interest and section 248 of the Taxes Act (allowance of charges on income).
(2) In the application of section 15 to any deep discount security, subsection (2)(b) shall have effect as if the references to the rate at which interest was payable were references to the aggregate of the rate of interest payable and the amount of any income element in respect of the security for the period in question.' .

No. 24, in page 151, line 48, at end insert—
'(4A) In determining whether a person who carries on a business of banking is a participator in a company for the purposes of this paragraph, there shall be disregarded any securities of the company acquired by him in the ordinary course of his business.'.

No. 25, in page 153, line 6, after 'shall', insert
'(subject to sub-paragraph (2A) below and'.

No. 26, in page 153, line 24, at end insert —
`(2A) Where a person would (but for this sub-paragraph) be treated by sub-paragraph (2)(a) above as having, for the purposes of paragraph 1 of this Schedule, disposed of deep discount securities which are converted into, or exchanged for, other deep discount securities—

(a) he shall not be so treated—

(i) if the date which is the redemption date in relation to the new securities is not later than the date which was the redemption date in relation to the converted or exchanged securities; and
(ii) no consideration is given for the conversion or exchange other than the new securities; but
(b) the amount of the accrued income attributable to his period of ownership of the converted or exchanged securities (including any amount added by virtue of the previous operation of this paragraph) shall be added to

the amount of the accrued income attributable tc his period of ownership of the new securities.'. —[Mr. Ian Stewart.]

Clause 37

BUSINESS EXPANSION SCHEME

Amendment made: No. 178, in page 24, line 32, leave out from beginning to `section' and insert—
`(2) After that paragraph there shall be inserted—
(2A) A trade shall not be treated as failing to comply with this paragraph by reason only of its consisting to a substantial extent of receiving royalties or licence fees if—

(a) the company carrying on the trade is engaged throughout the relevant period in the product ion of films; and
(b) all royalties and licence fees received by it in that period are in respect of films produced by it or sound recordings in relation to such films or other products arising from such films. 
(2B) In this paragraph—

'film' means an original master negative of a film, an original master film disc or an original film tape; and
`sound recording' means, in relation to a film, its sound track, original master audio disc or, as the case may be, original master audio tape.".
(3) Subsection (1) of this'.—[Mr. Ian Stewart.]

Clause 38

APPROVED SHARE. OPTION SCHEMES

Amendments made: No. 27, in page 25, line 16, leave out 'five' and insert 'three'.

No. 28, in page 25, line 19, after `exercised', insert
`(in circumstances in which paragraphs (a) and (b) of subsection (3) above apply)'—[Mr. Moore.]

Schedule 10

APPROVED SHARE OPTION SCHEMES

Amendments made: No. 30, in page 155, line 28, leave out second `full-time' and insert `qualifying'.

No. 31, in page 155, line 43, leave out second lull-time' and insert `qualifying'.

No. 32, in page 155, line 48, at end insert—
'(4) In determining for the puposes of this paragraph whether a person has or has had a material interest in a company, subsection (6) of section 285 of the Taxes Act (interest paid to directors and directors' associates) and paragraph (ii) of the proviso to section 303(3) of that Act (meaning of "associate') shall have effect with the substitution for the references in those provisions to 5 per cent. of references to 10 per cent.'.

No. 33, in page 156, line 13, at end insert—
'(2A) Where there were no relevant emoluments for the preceding year of assessment, subparagraph (2) above shall apply with the following paragraph substituted for paragraph (b)—
(b) four times the amount of the relevant emoluments for the period of twelve months beginning with the first day during the current year of assessment in respect of which there are relevant emoluments".'.

No. 34, in page 158, line 43, at end insert—
`qualifying employee" in relation to a company, means an employee of the company (other than one who is a director of the company or, in the case of a group scheme, of a participating company) who is required, under the terms of his employment, to work for the company for at least twenty hours a week;'. —[Mr. Moore.]

Clause 47

ENDING OF STOCK RELIEF

Amendments made: No. 35, in page 35, line 29, leave out from `first' to `and' in line 32 and insert `relevant chargeable period'.

No. 36, in page 35, line 33, at end insert—
'(7A) For the purposes of subsection (7) above the first relevant chargeable period is—

(a) in a case where the election so specifies, the first chargeable period for which the profits or gains or losses of the trade in question are computed by reference to the facts of the period of account commencing on or before an ending after 12th March 1984, or
(b) in any other case, the first chargeable period for which that computation is by reference to the facts of the first period of account commencing on or after 13th March 1984.'.—[Mr. Moore.]

Mr. Wallace: I beg to move amendment No. 113, in page 35, line 36, at end insert—
'(9) This section shall not apply to stocks of maturing Scotch whisky held in the course of trade'. 
The amendment would remove the Scotch whisky industry from the provisions of the Bill which abolish stock relief. The Minister has probably been made well aware of the arguments of the whisky industry, with which he has had numerous discussions in recent weeks. This major concession is sought because of the obvious nature of whisky, which must be laid down for many years before it can be sold. Therefore, the inflationary uplift for whisky stocks is much greater in many cases than for the stocks held by other industries and trades. The industry estimates that the abolition of stock relief would lead to a 3·6 per cent. increase in corporation tax. A distillery in my constituency has estimated that the effect of the abolition of stock relief would be a reduction of 30 per cent. in the funds available for investment and marketing. Few would claim that the whisky industry has enjoyed a buoyant period recently. The importance of marketing and brand building is crucial for the whisky industry in many parts of Scotland, and that is why the amendment is important 
The industry has made representations to the Minister. I have tabled the amendment in the hope that the Government will recognise the peculiar problems of the whisky industry if stock relief is abolished, and that they will go some way to easing the industry's problems.
In the Budget statement the Chancellor of the Exchequer said that he hoped that the transitional arrangements for corporation tax would be broadly neutral. That has not been so in the whisky industry. Therefore, I hope that the Government will introduce new measures or will at least give a sign that they are prepared to resolve any problems caused by the abolition of stock relief

Mr. Hayhoe: The amendment provides that stock relief should continue to be available in respect of stocks of maturing Scotch whisky held in the course of trade. Relief would thus be available to distillers and blenders of whisky who hold stocks in hand but not for retailer stocks of bottled whisky. In the current financial year the cost would be nil. In 1985–86, it would probably be about £20 million, and in the following years it would be £30 million. Therefore, the relief that the hon. Gentleman is seeking would cost a significant amount.
The hon. Gentleman will recognise that the provisions for stock relief are being applied to the whisky companies in precisely the same way as they are applied in other areas of the economy. We recognise the importance of the industry. A number of my hon. Friends have stressed its importance, and a deputation went to see my hon. Friend the Financial Secretary to discuss these issues.
There is no lack of understanding of the importance that the Scotch Whisky Association attaches to the matter. Nevertheless, the companies should look at the proposals in the Budget and in the Bill as a whole. We did not abolish stock relief in isolation. It was part of a major reform of company taxation. The reduced rates of corporation tax will help, and, as the hon. Gentleman will know, the duty on whisky in the Budget was less than valorised, by just under 2 per cent., so the Government have recognised the importance of the Scotch whisky industry as a whole. On the basis that the Government, by their performance, have shown their concern, and will continue to bear the interests of that major exporting industry very much in mind, I hope that the hon. Gentleman will seek leave to withdraw the amendment

Mr. Wallace: I listened carefully to the Minister's reply. He will appreciate that the fact that the amendment would cost money to implement is one reason why it was tabled. As I said, it is all part of a corporate taxation programme. The whisky industry has suggested a phased withdrawal of stock relief. I am glad that the Minister appreciates the problems that the industry faces, and I hope that he will continue to have discussions with the trade.
I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49

FURNISHED HOLIDAY LETTINGS

Mr. Peter Rees: I beg to move amendment No. 37, in page 37, line 8, leave out from 'available' to end of line 19 and insert
`for commercial letting to the public generally as holiday accommodation for periods which amount, in the aggregate, to not less than 140 days;

(b) the periods for which it is so let amount, in the aggregate, to at least 70 days; and
(c) for a period comprising at least seven months (which need not be continuous but includes any months in which it is let as mentioned in paragraph (b) above) it is not normally in the same occupation for a continuous period exceeding 31 days.'

Mr. Deputy Speaker (Mr. Ernest Armstrong): It will be convenient to discuss at the same time the following: Government amendments Nos. 38 to 41.

Government amendment No. 42, in schedule 11, page 159, line 17, leave out from beginning to end of line 26 on page 160 and insert—

'Treatment of lettings as a trade for certain purposes

1.—(1) Subject to the provisions of this Schedule, for the purposes of the provisions mentioned in sub-paragraph (2) below—

(a) the commercial letting of furnished holiday accommodation in respect of which the profits or gains are chargeable under Case VI of Schedule D shall be treated as a trade; and
(b) all such lettings made by a particular person or partnership or body of persons shall be treated as one trade.

(2) The provisions mentioned in sub-paragraph (1) above are—

(a) section 4(2) of the Taxes Act (payment of income tax in two equal instalments);
(b) sections 168 to 175 and 177 to 178 of the Taxes Act and section 30 of the Finance Act 1978 (relief of losses);
(c) subsection (9)(c) of section 226 of the Taxes Act (retirement annuity contracts);
(d) subsection (1)(c) of section 530 of that Act (earned income);
(e) Chapter I of Part III of the Finance Act 1971 (capital allowances);
(f) sections 115 to 120 of the Capital Gains Tax Act 1979 (roll-over relief for replacement of business assets);
(g) section 124 of that Act (transfer of business on retirement);
(h) section 126 of that Act (relief for gifts of business assets);
(i) section 136 of that Act (relief in respect of loans to traders); and;
(j) section 39 of the Finance Act 1980 (relief for pre-trading expenditure).

Losses and pre-trading expenditure

2.—(1) in their application by virtue of paragraph 1 above, section 175(1) of the Taxes Act (treatment of interest as a loss for purposes of carry-forward and carry-back) and section 39(1) of the Finance Act 1980 shall have effect as if for the references in those sections to Case I of Schedule D there were substituted references to Case VI of that Schedule.

(2) No relief shall be given to an individual under section 30 of the Finance Act 1978, as it applies by virtue of paragraph 1 above, in respect of a loss sustained in any year of assessment if any of the accommodation in respect of which the trade is carried on in that year was first let by him as furnished accommodation more than three years before the beginning of that year of assessment.

(3) Relief shall not be given for the same loss or the same portion of a loss both under any of the provisions mentioned in paragraph 1(2)(b) above, as they apply by virtue of this Schedule, and under any other provision of the Tax Acts.

Expenditure

3. In computing the profits or gains arising from the commercial letting of furnished holiday accommodation which are chargeable to tax under Case VI of Schedule D, such expenditure may be deducted as would be deductible if the letting were a trade and those profits or gains were accordingly to be computed in accordance with the rules applicable to Case I of that Schedule.

Capital gains tax

4. — (1) Subject to sub-paragraph (2) below, for the purposes of the provisions mentioned in sub-paragraph (2)(f) to (i) of paragraph 1 above as they apply by virtue of that paragraph, where in any year of assessment a person makes a commercial letting of furnished holiday accommodation—

(a) the accommodation shall be taken to be used in that year only for the purposes of the trade of making such lettings; and
(b) that trade shall be taken to be carried on throughout that year.

(2) Sub-paragraph (1) above does not apply to any period in a year of assessment during which the accommodation is neither let commercially nor available to be so let unless it is prevented from being so let or available by any works of construction or repair.

5. Where—

(a) a gain to which section 101 of the Capital Gains Tax Act 1979 (relief on disposal of private residence) applies accrues to any individual on the disposal of an asset; and
(b) by virtue of paragraph 1 above the amount or value of the consideration for the acquisition of the asset is treated as reduced under section 115 or 116 of that Act,
the gain to which section 101 applies shall be reduced by the amount of the reduction mentioned in paragraph (b) above.

Power to make apportionments

6. Where there is a letting of accommodation only part of which is holiday accommodation, such apportionments shall be made for the purposes of this Schedule as appear to the inspector, or on appeal the Commissioners, to be just and reasonable.'.

Amendment (a) to proposed amendment No. 42, in paragraph 1(2), at end insert'—
`(k) section 73 of and Schedule 10 to the Finance Act 1976'

Mrs. Elaine Kellett-Bowman: I thank the Government for amendment No. 42, which relates to a point on which we have been pressing strongly. However, I should like them to accept amendment (a) to that amendment, which would extend capital transfer tax relief for business property to furnished holiday lettings. That would be extremely helpful for holiday letting owners and caravan site owners on the west coast as well as in the north-west, and I hope that the Minister will agree to that additional concession.

Sir Anthony Meyer: Like my hon. Friend the Member for Lancaster (Mrs. Kellett-Bowman), I wish to express my gratitude to Treasury Ministers for the trouble that they have taken by way of this series of amendments in making concessions to meet the genuine needs of those engaged in the holiday letting industry, which is of great importance to the tourist industry, particularly in the part of the country that I represent.
For me, what the Government have done represents two thirds of a loaf, though I appreciate that that is a great deal better than no bread at all. I would have preferred to see no stipulation that the premises must be let for any fixed period during the year. Any hotel keeper who, for reasons beyond his control, is unable to let accommodation for that period is liable to forfeit all concessions thereby. However, I recognise the enormous steps which have been taken to meet the genuine concerns that were expressed, and I am grateful for that

Mr. Stephen Ross: I welcome this series of amendments, which will have a considerable effect on my constituency. May please take it that they mean that holiday parks will in future be charged under case I, schedule D? I assume that they will, but I have received letters from leading chartered accountants stating that they are still not absolutely sure on the point. May we be reassured about that, because it is desperately important?

Mr. Norman Miscampbell: I, too, rise simply to say how grateful those who represent the holiday industry are for the concessions that have been made, following a number of interviews and approaches in the last six months.
I hope that the Government will bear in mind the problem that may arise by limiting this concession to the date of 1982. There may be cases which have not yet been settled but which arose before that date and which could give rise to considerable difficulties because of a misinterpretation over the years, as it now turns out, by the Inland Revenue

Mr. Maxwell-Hyslop: I wish to keep in the minds of my right hon. and hon. Friends the danger of any minimum period of letting. The practical effect is that the most attractive rooms will be let first and will first fulfil any minimum letting requirement. A minimum letting requirement can have the bizarre effect of closing up and not letting the better rooms so that the quota is met on the least attractive rooms. I am sure that that is not what the


Government intend, but it is an issue that I raised at a meeting with my hon. Friend the Financial Secretary to the Treasury. It is not clear to me how the difficulty has been overcome. To use the description which I employed when I met my hon. Friend, I cannot believe that the room with the cracked loo and the spider in the plughole of the washbasin is the one that has to be offered to holiday visitors because the one that does not have a cracked loo and a spider has been let for the minimum qualifying period. I should like my right hon. and learned Friend's response to that specific question

Mr. John Townend: I, too, am grateful to my right hon. and learned Friend the Chief Secretary to the Treasury for the concessions that have been made. They will help caravan park operators who offer the facility of caravans, but they will not help caravan operators who deal in pitches that are available for holiday or residential purposes. It is perturbing that some of these businesses that have been assessed under case 1 are finding that the Inland Revenue is holding up the settlement of the assessments and waiting until the Finance Bill has completed its passage through the House, when it intends to assess them under case 6.
It seems that the Government have conceded what many of us have been saying for many months about the holiday letting business. Many of us have been arguing that it is a trade and the Government have given it many of the allowances that are applicable to trade. I cannot understand why they have not gone the whole way and returned to assessing them under case 1. It seems that there has been heavy pressure from the Inland Revenue. I should be grateful if my right hon. and learned Friend would consider again the position of caravan site operators

Mr. Eldon Griffiths: I would have preferred the Government to go the whole way and to define the caravan industry as a trade. However, we have achieved what matters, for a reduction in the minimum number of days will have a practical effect. I ask my right hon. and learned Friend, who has contributed so much to this achievement, whether he is able to accept amendment (a). If not, will he be good enough to write to those of us who are interested to explain his reasons for being unable to do so? I do not ask him to weary the House with his reasons at this stage.

Sir Peter Blaker: I add my thanks to the Government for the steps that they have taken. The issue that we are discussing has aroused enormous interest and produced one of the fattest piles of correspondence that I have received for many years. I pay tribute to the Blackpool association, which is one of the largest in the country, for the help that it gave in preparing amendments to be tabled in Committee.
I ask my right hon. and learned Friend to explain why he has not agreed to treat these trades, which is how I regard them, as eligible under case 1. However, I understand that he is giving them everything that case 1 would provide.
I reinforce the comment of my hon. and learned Friend the Member for Blackpool, North (Mr. Miscampbell), which is exemplified by one of my constituents who sold his newsagent's business in 1979. He bought some holiday flats in 1981 with the best advice from his accountants on

the law as it was then understood. The attitude of the Inland Revenue now is that he must pay capital gains tax and is not eligible for roll-over relief. It would be unconscionable if the Inland Revenue were to press that case, and I ask for an assurance from my right hon. and learned Friend that cases arising before April 1982 will be treated sympathetically and fairly

Mr. David Maclean: I agree with everything that has been said by my hon. Friends on this issue. There are many holiday park operators in my constituency and they are concerned that my right hon. and learned Friend has not gone the whole hog and treated caravan site operators as operating within a trade. They provide substantial services and it is important that they are given the treatment that the Inland Revenue would normally give a trade under its terminology. I hope that my hon. Friend will address himself to this issue

Mr. John Butterfill: I thank my right hon. and learned Friend for his courtesy in looking at this subject over a number of months. Will he clarify the position under clause 49 whereby, for example, 11 flats in a block of 12 flats are let for the minimum prescribed period, but one flat remains unlet because of the need to carry out works of substantial refurbishment? What will be the position of the owner or occupier of that one flat? An answer to that question would be most helpful to me and my constituents.

11 am

Mr. Peter Rees: I very much appreciate my hon. Friends' kind words. It is rare that during the debate on the Finance Bill one receives such gratitude, so I am suitably appreciative.
My hon. Friends the Members for Lancaster (Mrs. Kellett-Bowman) and for Bury St. Edmunds (Mr. Griffiths) made similar points about capital transfer tax. The whole problem was triggered by income tax—it had nothing to do with capital transfer tax. Although I accept that there may be a case—I do not go further than that —for giving capital transfer tax relief for such lettings, that would take the debate into a new area. I hope that both my hon. Friends will accept that there is no case to be made or time for that to be done, at least this year. Perhaps the measure will be considered without any commitment, but that would be a new departure. My hon. and learned Friend the Member for Blackpool, North (Mr. Miscampbell) and my right hon. Friend the Member for Blackpool, South (Sir P. Blaker) have shown a long and continuing interest in this problem, and I cheerfully pay tribute to them.
The House will appreciate that the relief is being made retrospective in any event. To push the date back before 1982 would not only cause considerable administrative difficulties for Inland Revenue but would appear to be unfair to those proprietors who have already let out on the basis of the law as it stands. That would happen unless I were to undertake—I cannot conscientously do so—to have their already closed assessments reopened. I hope that the House will feel that taking the date back to 1982 will do justice—perhaps it will not be total justice—to a substantial part of the case advanced by my right hon. Friend the Member for Blackpool, South and my hon. and learned Friend the Member for Blackpool, North.
My hon. and learned Friend the Member for Blackpool, North and one or two other hon. Members asked why we


did not totally assimilate case I of schedule D. On examining the legislation, my hon. Friends will note that we have given for individuals all the reliefs that would have been available had those operations been assessable under case I of schedule D.
There is, however, one technical point, which I am sure my hon. Friends will appreciate. Under case I of schedule D, the commencement and cessation provisions would apply. Those provisions, would be extremely difficlt to operate in practice, because in one year a letting might be made within the terms of the clause and in another year it might not. Practically all the reliefs for which my hon. Friends, who are rightly concernd for these cases, have pressed, have been conceded not only in the original clause as drafted but in the amendments.
My hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) was worried about repairs and redecorations.

Mr. Maxwell-Hyslop: The minimum period

Mr. Rees: My hon. Friend will realise that the Government have reduced the minimum period. If we reduce it still further—bearing in mind the fact that we have now jettisoned this seasonal test — a range of lettings might qualify. I am sure that the whole House will agree that they are not intended to be brought within the ambit of the measure. Lettings unconnected with holidays might qualify.
As I understand the thrust of all the representations made in Standing Committee and on Report, we wish to clarify the position only for genuine holiday lets. I am sure that my hon. Friend the Member for Tiverton recognises that if we were to reduce or dispense with the minimum period, furnished flats in, for example, London—in the normal course of events, they are not let to tourists—might qualify. I do not believe that that is the intention of the House. Therefore, I hope that, on reflection, my hon. Friend will feel that justice is being done in this case, particularly as we have reduced the minimum period to 70 days.
My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) made a cogent point, which I fully appreciate, but I hope that he will feel that justice is being done through the averaging provisions that he will find in the Government amendments. I hope that they will take care of that case.
This point has exercised the minds not only of the hon. Member for Isle of Wight (Mr. Ross) and my hon. Friend the Member for Penrith and The Border (Mr. Maclean) but of others inside and outside the House. It concerns caravan sites. The provisions give caravan site proprietors an extra option. If they can bring themselves within the provisions —in principle there is no reason why they should not—they will be able to take advantage of the reliefs in precisely the same way as proprietors of fixed holiday houses. That still does not shut them out, on normal general principles, from claiming case I of schedule D treatment. It would be inappropriate for me to try to be specific. In one part of the spectrum, we have the letting of a pitch in an ordinary field with no facilities or services.
The two cases that have triggered off the debate will come under not case I of schedule D but case I of schedule A. On the other hand, if there were a range of services and facilities independent of the new reliefs, I suspect that the site proprietor would be able to claim treatment under case

I of schedule D. That will be an added bonus. It is not designed to shut people out from claiming case I treatment on general legal principles

Mr. Robert Adley: I should like to make a small point. My right hon. and learned Friend is aware that many of those who run such sites have thoroughly legitimate worthwhile businesses providing employment for many people in constituencies such as mine. It would be helpful if my right hon. and learned Friend could say a word of commendation to those people, saying that he accepts that they do not need to prove their virility as business men, but are worthy members of society

Mr. Rees: If it will assuage those people's anxieties and those of my hon. Friend, who is concerned about their interests, I shall say that that is well known in tourism. Nothing that I have said is meant to commend in moral or any other terms those who may fall within or outwith the provisions. If it gives pleasure—I am always flattered if any words of mine give pleasure—I should like to say that I am sure that the majority of those people make a worthwhile contribution to the tourist industry, which is an important element of our economy. On that basis, I commend the amendment to the House.

Amendment agreed to.

Amendments made: No. 40, in page 38, line 12, at end insert—
'(6A) Where, in any year of assessment or accounting period, a person lets furnished accommodation which is treated as holiday accommodation for the purposes of this section in that year or period ("the qualifying accommodation"), he may make a claim under this subsection, within two years after that year or period, for averaging treatment to apply for that year or period to that and any other accommodation specified in the claim which was let by him as furnished accommodation during that year or period and would fall to be treated as holiday accommodation in that year or period if paragraph (b) of subsection (3) were satisfied in relation to it. 
(6B) Where a claim is made under subsection (6A) above in respect of any year of assessment or accounting period, any such other accommodation shall he treated as being holiday accommodation in that year or period if the number of days for which the qualifying accommodation and any other such accommodation was let by the claimant as mentioned in paragraph (a) of subsection (3) above during the year or period amounts on average to at least 70. 
(6C) Qualifying accommodation may not be specified in more than one claim in respect of any one year of assessment or accounting period.' .

No. 41, in page 38, line 16, at end insert—
'(8) This section has effect—

(a) for the purposes of income tax for the year 1982-.83 and subsequent years of assessment;
(b) for the purposes of capital gains tax and corporation tax on chargeable gains

(i) in so far as it applies in relation to sections 115 to 120 of the Capital Gains Tax Act 1979. where the acquisition of, or of the interest in, the new assets takes place on or after 6th April 1982, and
(ii) otherwise, in relation to disposals made on or after that date; and
(c) for the purposes of corporation tax, otherwise than on chargeable gains, in relation to accounting periods commencing in the financial year 1982 and subsequent periods.'—[Hayhoe.]

Schedule 11

FURNISHED HOLIDAY LETTINGS

Amendment made: No. 42, in page 159, line 17, leave out from beginning to end of line 26 on page 160 and insert—

Treatment of lettings as a trade for certain purposes

1.—(1) Subject to the provisions of this Schedule, for the purposes of the provisions mentioned in sub-paragraph (2) below—

(a) the commercial letting of furnished holiday accommodation in respect of which the profits or gains are chargeable under Case VI of Schedule D shall be treated as a trade; and
(b) all such lettings made by a particular person or partnership or body of persons shall be treated as one trade.

(2) The provisions mentioned in sub-paragraph (1) above are—

(a) section 4(2) of the Taxes Act (payment of income tax in two equal instalments);
(b) sections 168 to 175 and 177 to 178 of the Taxes Act and section 30 of the Finance Act 1978 (relief for losses);
(c) subsection (9)(c) of section 226 of the Taxes Act (retirement annuity contracts);
(d) subsection (1)(c) of section 530 of that Act (earned income);
(e) Chapter 1 of Part III of the Finance Act 1971 (capital allowances);
(f) sections 115 to 120 of the Capital Gains Tax Act 1979 (roll-over relief for replacement of business assets);
(g) section 124 of that Act (transfer of business on retirement);
(h) section 126 of that Act (relief for gifts of business assets);
(i) section 136 of that Act (relief in respect of loans to traders); and
(j) section 39 of the Finance Act 1980 (relief for pre-trading expenditure).

Losses and pre-trading expenditure

2. —(1) In their application by virtue of paragraph 1 above, section 175(1) of the Taxes Act (treatment of interest as a loss for purposes of carry-forward and carry-back) and section 39(1) of the Finance Act 1980 shall have effect as if for the references in those sections to Case I of Schedule D there were substituted references to Case VI of that Schedule.

(2) No relief shall be given to an individual under section 30 of the Finance Act 1978, as it applies by virtue of paragraph 1 above, in respect of a loss sustained in any year of assessment if any of the accommodation in respect of which the trade is carried on in that year was first let by him as furnished accommodation more than three years before the beginning of that year of assessment.

(3) Relief shall not be given for the same loss or the same portion of a loss both under any of the provisions mentioned in paragraph 1(2)(b) above, as they apply by virtue of this Schedule, and under any other provision of the Tax Acts.

Expenditure

3. In computing the profits or gains arising from the commercial letting of furnished holiday accommodation which are chargeable to tax under Case VI of Schedule D, such expenditure may be deducted as would be deductible if the letting were a trade and those profits or gains were accordingly to be computed in accordance with the rules applicable to Case I of that Schedule.

Capital gains tax

4.—(1) Subject to sub-paragraph (2) below, for the purposes of the provisions mentioned in sub-paragraph (2)(f) to (i) of paragraph 1 above as they apply by virtue of that paragraph, where in any year of assessment a person makes a commercial letting of furnished holiday accommodation—

(a) the accommodation shall be taken to be used in that year only for the purposes of the trade of making such lettings; and
(b) that trade shall be taken to be carried on throughout that year.

(2) Sub-paragraph (1) above does not apply to any period in a year of assessment during which the accommodation is neither let commercially nor available to be so let unless it is prevented from being so let or available by any works of construction or repair.

5. Where—

(a) a gain to which section 101 of the Capital Gains Tax Act 1979 (relief on disposal of private residence) applies accrues to any individual on the disposal of an asset; and
(b) by virtue of paragraph 1 above the amount or value of the consideration for the acquisition of the asset is treated as reduced under section 115 or 116 of that Act,
the gain to which section 101 applies shall be reduced by the amount of the reduction mentioned in paragraph (b) above.

Power to make apportionments

6. Where there is a letting of accommodation only part of which is holiday accommodation, such apportionments shall be made for the purposes of this Schedule as appear to the inspector, or on appeal the Commissioners, to be just and reasonable.'. —[Mr. Hayhoe.]

Clause 56

PROCEEDINGS IN MAGISTRATES' COURTS AND COUNTY COURTS

Amendment made: No. 43, in page 42, line 36, at end insert
`and any such statutory instrument shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament. '.—[Mr. Hayhoe.]

Clause 57

WITHDRAWAL OF INITIAL AND FIRST-YEAR ALLOWANCES

Mr. Wallace: I beg to move amendment No. 152, in page 43, line 3, after `(1)', insert
`Except as provided in subsection (3) below'

Mr. Deputy Speaker (Mr. Ernest Armstrong): With this, it will be convenient to take the following amendments: No. 153, in page 43, line 20, at end insert—p
'(3) Subsection (1) above shall not apply in respect of capital expenditure for the purchase of a fishing vessel by a person solely engaged in fishing .

No. 192, in schedule 12, page 161, line 30, at end insert—
'(c) is incurred in the acquisition of a new fishing vessel in which case the provisions of section 42(1) of the Finance Act 1971 (rate of first-year allowance for capital expenditure incurred in provision of machinery or plant) shall continue to apply at the rates which applied prior to 1st April 1984.'

Mr. Wallace: I shall try to be as brief with fishermen as I was with whisky.
The effect of the amendment would be to retain capital allowances in respect of expenditure on fishing boats for persons who derive their income solely from fishing.
I should like to say a few words about the background of the industry against which the amendment must be seen. Most vessels in Scotland, particularly in the islands, are part or wholly owned by the working skipper and operated by working fishermen. The ownership is often shared with other members of the skipper's family, and, in some cases, by young fishermen investing their capital in a small share in the boat.
The essence of the share fishing system is that all who participate in the venture participate in the proceeds. There is also a reasonably well understood ladder whereby skippers go on to bigger and better boats so that younger fishermen have the opportunity to acquire the older boats and thus establish themselves. That is the dynamic nature of the industry, which, despite many problems, has done


a great deal to modernise itself. Nowadays, if one goes on board a fishing vessel, one sees extremely sophisticated electronic equipment.
That is the background against which I argue for the retention of capital allowances. Two points stand out. First, share fishermen are almost invariably self-employed. Under the Bill as it stands, they would lose their allowances without benefiting from lower rates of corporate taxation available to the corporate sector. Secondly, even allowing for grants from local, national or European sources, the purchase of a new boat involves an enormous capital outlay, usually assisted by substantial bank borrowing. 
Under the system of capital allowances which operated before the Budget, the skipper of a new vessel could use the first-year allowance to set off against the balancing charge arising on the sale of his former vessel because he was allowed to claim up to 100 per cent. If he is restricted to 25 per cent., as the Bill proposes, the tax loss to be set against the balancing charge will be such that many skippers will face substantial liability to income tax. Consequently, a bank overdraft will be required to meet not just the balance of the purchase price but the substantial tax demand.
It is feared that the result will be that many skippers will be deterred from buying new boats or that the banks will not be prepared to grant the additional overdraft facilities. Similar considerations apply to younger fishermen coming up through the industry. If the older boats do not come on to the market and they have only a small share in an existing vessel, they will not have the advantage of the first-year allowance when they seek to become skippers themselves.
In short, it is feared that the restructuring of capital allowances will be a disincentive to modernisation of the fishing fleet and a barrier to subsequent generations of skippers and fishermen on whom the industry depends —an industry on which in turn many local communities in my area depend. We believe that the Bill is a recipe for a less efficient fleet.
I appreciate that the industry was very late in recognising the full impact of the proposals, and representations have been made to the Treasury only in the past two or three weeks. However, the purpose of the amendment is to highlight a serious threat to the industry in the hope that, even if the Government are unwilling to accede to the amendment, as drafted, the Minister will acknowledge the problem and express his willingness to discuss it with representatives of the industry and to try to find a way to mitigate the serious effects of the Bill, as drafted

Mr. Albert McQuarrie: I apologise for not being present for the start of the speech made by the hon. Member for Orkney and Shetland (Mr. Wallace) as I was occupied in the Scottish Grand Committee. I support amendment No. 153 in the name of the hon. Gentleman and myself because clause 57 as drafted is causing great concern to fishing vessel owners.
Around the coast of Scotland, and especially in my area, there are more than 1,500 fishing vessels, mostly owned or operated by working fishermen with the skipper either owning all the equity or joining in a partnership with a number of crew members. More often than not, the crew will include family members. This will cause added

difficulty if capital funding is taken away because it will be harder for a family member or a young fisherman to acquire a first interest in a vessel.
The vessels are operated entirely on the share fishing system in which everyone participates in the success or failure of the voyage. That is an indispensable element in the progression and development of the modern fishing fleet in Scotland. At the appropriate time, the skipper can acquire a new or larger vessel, thus creating opportunities for young men to purchase their first vessels. Such a step requires a major investment decision. In the past, the free depreciation on fishing vessels has helped to enable people to take that decision. If clause 57 is not amended, it wall halt the progress in fishing vessel ownership and investment, which has brought the Scottish fleet to the forefront in Europe, and the industry will be left with an ever-ageing fleet.
11.15 am
Withdrawal of the present free depreciation will have a serious knock-on effect for the boatbuilding industry, which depends entirely for its survival on an adequate supply of orders for new building and modernisation work. I therefore trust that amendment No. 152 will be accepted and that fishermen will continue to benefit from free depreciation without the restrictions that clause 57 as it stands would impose. We must support the fishing industry and not penalise it. The amendment would have the effect of allowing exemption from section 1 of clause 57
where the asset giving rise to income and profit remains the main, or part of the partner's business activity.
I commend the amendment to the House

Mr. Moore: I shall be brief, but the brevity of my response will not mean that I underestimate the importance of the fishing industry.
Amendment No. 152 in the name of the hon. Member for Orkney and Shetland (Mr. Wallace) and my hon. Friend the Member for Banff and Buchan (Mr. McQuarrie) is incompatible with our basic Budget corporation tax strategy, but I would not wish hon. Members to be unaware of our commitment to the fishing industry. The Government have worked hard within the European Community to negotiate the common fisheries policy, which is a broad framework within which the industry can plan for the future, and which will help to bring about a better balance between fishing capacity and the market.
In addition, we have made a full range of grants, worth up to £85 million over the next three years, available from Community and Exchequer funds. Those funds will help to remove from the fleet some vessels that are no longer viable, while at the same time we are encouraging building and the modernisation of the remaining fleet.
We should not accept the claim that the impact of the Budget on the fishing industry will be as widespread as has been suggested. I fully understand the ownership relationship in parts of the fishing fleet, and I recognise the difficulties surrounding unincorporated business. However, I believe that other aspects concerned with the balancing charges have not been fully appreciated. I shall write to the hon. Gentleman and will make sure that the industry receives copies of the correspondence, because it is important that the dialogue should continue. I remind hon. Members who have not been present throughout the night—I do not need to remind the hon. Member for Orkney and Shetland — that we have made major and


substantive changes to clause 34, in relation to the increased flexibility in the use of writing-down allowances and the commitment to continue free depreciation for shipping, which of course includes fishing vessels. Recognising the difficulties but bearing in mind the additional assistance that the Government have sought to give, I hope that the hon. Member will not seek to press the amendment to a Division

Mr. Wallace: Having listened to the Minister I am particularly grateful to him for saying that he will continue the dialogue. The important point is that fishing is not within the corporate sector. It is its incorporate nature that causes the problem. As the Minister has undertaken to continue the dialogue, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 44, in page 43, line 20, at end insert—
'(3) In paragraph 8 of Schedule 8 to the Finance Act 1971 (special rules for new ships) in sub-paragraph (2)(b) for the words "the expenditure to which the allowance relates" there shall be substituted the words "so much of the expenditure as is equal to the whole allowance.
(4) Nothing in subsection (1)(a) above or in paragraph 1 of Schedule 12 to this Act affects the contining operation of—

(a) paragraph 1 of Schedule 6 to the Finance Act 1978 (20 per cent. initial allowance for capital expenditure in respect of hotels); or
(b) paragraph 1 of Schedule 13 to the Finance Act 1980 (100 per cent. initial allowance for capital expenditure in respect of industrial buildings etc. in enterprise zones and for capital expenditure incurred before 27th March 1985 in respect of small workshops);
and paragraph 5 of Schedule 12 to this Act does not apply to expenditure in respect of which the rate of initial allowance is determined by the provision referred to in paragraph (b) above. '.—[Mr. Moore.]

Schedule 12

INITIAL ALLOWANCES AND FIRST-YEAR ALLOWANCES

Amendments made: No. 46, in page 161, line 11, at end insert 'except that—

(a) expenditure shall not be treated for the purposes of those sub-paragraphs as having been incurred after the date on which it was in fact incurred by reason only of section 1(6) of that Act (expenditure incurred before a trade begins); and
(b) expenditure falling within subsection (1)(b) of section 5 of that Act (purchase price of building or structure bought unused) shall be treated for the purposes of those sub-paragraphs as having been incurred at the latest time when any expenditure falling within subsection (1)(a) of that section (expenditure on the construction of the building or structure) was incurred.'

No. 49 in page 161, line 30, at end insert
'or by a person whose contractual obligations that person has assumed with a view to entering into leasing arrangements. 
(2A) For the purposes of sub-paragraph (2)(b) above, a person incurring expenditure on the provision of machinery or plant (in this sub-paragraph referred to as "the lessor") shall be taken to have assumed, with a view to entering into leasing arrangements, the contractual obligations of persons who entered into a contract for the provision of that machinery or plant (in this sub-paragraph referred to as "the lessee") if, and only if,—

(a) arrangements exist under which the lessor will lease the machinery or plant to the lessee, and 
(b) the obligations of the lessee under the contract either have been taken over by the lessor or have been discharged on the lessor's entering into a new contract for the provision of the machinery or plant concerned;

and, where there is such a new contract as is referred to in paragraph (b) above, sums paid under that contract shall be treated for the purposes of sub-paragraph (2)(b) above and Part II of this Schedule as paid under the contract referred to in that sub-paragraph.' .

No. 50, in page 161, line 31, leave out 'and (2)' and insert 'to (2A)'.

No. 53, in page 162, line 9, at end insert
'except that expenditure falling within sub-paragraph (1)(b) of paragraph 8 of that Schedule (purchase price of building bought unused) shall be treated for the purposes of those sub-paragraphs as having been incurred at the latest time when any expenditure falling within sub-paragraph (1)(a) of that paragraph (expenditure on the construction of the building) was incurred. — [Mr. Moore.]

Amendment proposed: No. 161, in page 162, line 24, leave out from 'State' to end of line 25 and insert
'in the period beginning on 1st April 1980 and ending on 13th March 1984 or in respect of which a written offer of financial assistance was made in that period by the Highlands and Islands Development Board'.—[Mr. Moore.]

Mr. Speaker: With this it will be convenient to take Government amendment No. 162

Mr. Hirst: I welcome these amendments, especially amendment No. 161, which relates to offers of selective assistance to businesses in the Highlands and Islands Development Board area. As my hon. Friend the Financial Secretary knows, vigorous representations were made by Scottish Conservative Members from that area who felt that offers of financial assistance from the HIDB should be put on a footing similar to those made by the Industry Department in Scotland. In the light of interest in this matter in much of Scotland, will my hon. Friend explain the purpose of amendments Nos. 161 and 162 and the irrelevance to Scotland?

Mr. Moore: I know that the House wishes to make progress, and I shall be as brief as possible. The amendments are complicated and I realise their importance to the Highlands and Islands and Northern Ireland.
Paragraph 12 contains the provisions for the capital allowance reforms, including the phased withdrawal of the first-year allowance for machinery and plant and the initial allowance for industrial buildings and assured tenancies. Those changes, as the House will know were generally welcomed and took effect from Budget day, 13 March. Expenditure incurred after that date generally qualifies for a lower rate of first year, or initial, allowance.
There are provisions, however, to protect certain projects where commitments had been entered into before Budget day. In those cases, the original rates of allowance are to remain available, even though the expenditure is not incurred until after 13 March. Paragraph 4 of schedule 12 is concerned with certain regional projects which fall into this category. These are projects in development areas in respect of which offers of selective financial assistance have been made during the past four years. These projects will have been proceeded with, on the basis of financial calculations which have assumed the availability of the old rates of allowance in conjunction with the assistance that has been offered. Selective assistance offers are pitched at the minimum necessary for a project to go ahead. Without continuation of the allowances, such a project's continuance would be put in jeopardy, and we do not think that would be right, especially as these schemes tend to be in the poorest areas. Similar arrangements were announced for regional development grants when they were altered last December.
As to the scope of this provision, I should mention that the European Commission has raised the question whether this paragraph is notifiable as a state aid under the European treaty. We are discussing the matter with it and expect to resolve any difficulties.
In its present form, paragraph 4 covers the main provisions under which selective financial assistance is available—that is the Industrial Development Act 1966 and, in Northern Ireland, the industrial development order.
These amendments would extend the protection to two further classes of project for which selective assistance is available. The first consists of projects in the Highlands and Islands, where offers of assistance are made by the Highlands and Islands Development Board. The cost would be relatively small — about £0·5 million in 1985–86 and £0·25 million in 1986–87. The second consists of small firm projects in Northern Ireland, where offers of assistance are made indirectly by the Local Enterprise Development Unit rather than by the Northern Ireland Government itself. Again the cost would be relatively small—less than £1 million in both 1985–86 and 1986–87.
These are minor relieving amendments and I hope that my explanation has been helpful.

Amendment agreed to.

Amendment made: No. 162, in page 162, line 36, leave out from 'Ireland' to end of line 37 and insert
`in the period beginning on 1st April 1980 and ending on 13th March 1984 or in respect of which a written offer of financial assistance was made in that period by the Local Enterprise Development Unit'.—[Mr. Moore.]

Mr. John Heddle (Mid-Staffordshire): I beg to move amendment No. 54, in page 162, line 46, at end insert:
`(4) The provisions of Part 1 of this Schedule do not apply to so much of any capital expenditure incurred before 1st April 1989 on an old industrial building situated in a textile closure area as defined in Article 2(e) of the Council of the European Communities Regulation (EEC) 219/84 and which was constructed before 1st June 1934.'.

Amendment No. 54 extends capital allowances in respect of old textile mills in the north of England—in red and white rose country—that are covered by the textile closure area as defined by an EEC regulation.
The buildings have a useful life in providing small workshop accommodation for people who want to start up business on their own. There is no incentive for the mills to be converted—there is 30 million sq. ft. of them—unless capital allowances are extended until 1989. The allowances should refer especially to buildings that were built before 1 June 1934. They would preserve industrial work space where such workshop accommodation is desperately needed. I believe that, without any real loss to the Treasury, extension of the allowances would greatly benefit the economy, the region and the people who want to start up in business on their own

Mr. Gary Waller: I shall be as brief as my hon. Friend the Member for Mid-Staffordshire (Mr. Heddle).
The problem of these old textile areas is that the mills are multi-storey, outdated premises. There is now an excess of floor space, and the people who used to work there are in many cases now unemployed. There are 300,000 unemployed in the two areas of Greater Manchester and West Yorkshire, many of whom used to work in the textile industry. There is still a relative excess

of people working in manufacturing, compared with which the area particularly lacks strong services and commercial sectors.
The conversion of these old mills would be an excellent way to provide floor space for which there is undoubtedly a demand. At present, it is not occurring at a sufficient level to deal with either the amount of surplus space or the high level of unemployment, but a study by consultants has shown that the older industrial buildings represent a potentially valuable source of new space, and could generate substantial additional economic activity.
The disadvantages are that there is a generally poor market perception of the buildings, and in many cases there is a need to overcome the backlog of repairs. A strategy providing financial assistance for investment for a limited period— say, five years—would allow this problem to be largely overcome. That is why my hon. Friend the Member for Mid-Staffordshire and I have tabled this amendment

Mr. Moore: I shall try to be as brief as my hon. Friends the Members for Maid-Staffordshire (Mr. Heddle) and for Keighley (Mr. Waller). They have made an important point.
I recognise the significant role that these old buildings can play in the economic life of the closure areas once they have been brought up to modern standards and adapted for new uses. We support the initiative to refurbish them. That is why, in addition to the assistance from the Community of £60 million, which is being provided over the five-year life of the scheme, the Government are providing selective financial assistance aimed at generating new small business activity. I understand that £30 million of the EEC aid is specifically earmarked for conversion projects to be undertaken by local authorities in these areas.
Despite the effective speeches made by my hon. Friends, it would not be right to make additional exceptions to the new capital allowances system. I hope that my hon. Friends will not seek to press their amendment

Mr. Heddle: Premises in textile closure areas are a special case, but, in view of what my hon. Friend the Financial Secretary has said, I shall seek leave to withdraw the amendment and perhaps return to it this time next year at a more reasonable hour. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 55, in page 163, line 2, after `Where', insert
`in circumstances falling within paragraph 7A below'.

No. 56, in page 163, line 13, leave out 'paragraph' and insert 'Part of this Schedule'.

No. 57, in page 163, line 36, leave out 'in the financial year' and insert 'on 1st April'.

No. 58, in page 163, line 45, leave out 'in the financial year' and insert 'on 1st April'.

No. 59, in page 164, line 2, at end insert
`except that—

(a) expenditure shall not be treated for the purposes of this paragraph as having been incurred after the date on which it was in fact incurred by reason only of section 1(6) of that Act; and
(b) expenditure falling within subsection (1)(b) of section 5 of that Act shall be treated for the purposes of this paragraph as having been incurred at the latest time when any expenditure falling within subsection (1)(a) of that section was incurred.'.

No. 60, in page 164, line 3, after 'Where', insert


'in circumstances falling within paragraph 7A below'.

No. 61, in page 164, line 9, after 'on', insert 'or before'.

No. 62, in page 164, line 17, leave out 'paragraph' and insert 'Part of this Schedule'.

No. 63, in page 164, line 42, leave out 'in the financial year' and insert 'on 1st April'.

No. 64, in page 165, line 6, leave out 'in the financial year' and insert 'on 1st April'.

No. 65, in page 165, line 8, at end insert
'except that expenditure shall not be treated for the purposes of this paragraph as having been incurred after the date on which it was in fact incurred by reason only of so much of section 50(4) of that Act as relates to expenditure incurred before a trade began'.

No. 66, in page 165, line 9, after 'Where', insert
'in circumstances falling within paragraph 7A below'.

No. 67, in page 165, line 19, leave out 'paragraph' and insert 'Part of this Schedule'.

No. 68, in page 165, line 42, leave out 'in the financial year' and insert 'on 1st April'.

No. 69, in page 166, line 3, leave out 'in the financial year' and insert 'on 1st April'.

No. 70, in page 166, line 5, at end insert
'except that expenditure falling within sub-paragraph (1)(b) of paragraph 8 of that Schedule shall be treated for the purposes of this paragraph as having been incurred at the latest time when any expenditure falling within sub-paragraph (1(a) of that paragraph was incurred.'.

No. 71, in page 166, line 5, at end insert—
'7A. —(1) The circumstances referred to in sub-paragraph (1) of each of paragraphs 5 to 7 above is that the sole or main benefit which (apart from this Part of this Schedule) might have been expected to be gained by incurring the expenditure at the time at which it was incurred was either—

(a) the securing of an initial allowance or first-year allowance in respect of the expenditure, rather than a writing-down allowance; or
(b) the securing of a higher rate of initial or first-year allowance in respect of the expenditure. 
(2) In sub-paragraph (1) above—

"initial allowance" means an initial allowance under section 1 of the Capital Allowances Act 1968 or Schedule 12 to the Finance Act 1982; and
"first-year allowance" means a first-year allowance under section 41 of the Finance Act 1971.'.

No. 72, in page 166, leave out lines 23 to 27 and insert—
'9. —(1) Where, by virtue of paragraph 5(4), paragraph 6(5) or paragraph 7(4) above, a portion of any expenditure which is incurred by any person in the financial year 1984 is deemed to be incurred on 1st April 1985, so much of that expenditure as is not deemed to be incurred on that date shall be apportioned to the chargeable periods or their basis periods which begin or end in the financial year 1984 on a time basis according to the respective lengths of those periods which fall within that financial year. 
(2) Where, by virtue of paragraph 5(5), paragraph 6(6) or paragraph 7(5) above, a portion of the aggregate of any capital expenditure incurred and deemed to be incurred by any person in the financial year 1985 is deemed to be incurred on 1st April 1986, so much of that aggregate expenditure as is not deemed to be incurred on that date shall be apportioned to the chargeable periods or their basis periods which begin or end in the financial year 1985 on the like time basis as is specified in sub-paragraph (1) above. '. —[Mr. Moore.]

Clause 60

EXPENDITURE ON PRODUCTION OR ACQUISITION OF FILMS ETC.: EXTENSION OF RELIEF

Amendment made: No. 73, in page 44, line 40, leave out Clause 60. —[Mr. Hayhoe.]

Clause 62

EXEMPTION FOR QUALIFYING CORPORATE BONDS

Amendment made: No. 74, in page 46, line 10, at end insert—
'(2A) For the purposes of subsection (2)(c) above,—

(a) a security shall not be regarded as expressed in sterling if the amount of sterling falls to be determined by reference to the value at any time of any other currency or asset; and
(b) a provision for redemption in a currency other than sterling but at the rate of exchange prevailing at redemption shall be disregarded.'. —[Mr. Hayhoe.]

Schedule 14

BENEFICIARY'S LIABILITY FOR TAX ON GAINS OF NON- RESIDENT TRUSTEES

Amendments made: No. 125, in page 170, line 4, at end insert—
'offshore income gain" has the same meaning as in Chapter VII of Part II of this Act. '.

No. 126, in page 173, line 1, at beginning insert
'Subject to sub-paragraph (2A) below'.

No. 127, in page 173, line 9, at end insert—
'(2A) In any case where, apart from this sub-paragraph, subparagraph (2) above would bring into account, as a relevant benefit in relation to a claim, a capital payment received under or by reference to a related settlement, and either

(a) on a claim relating to the related settlement, the payment falls to be taken into account under this paragraph as a relevant benefit, or
(b) it appears to the Board to be likely that the payment will fall to be so taken into account on a claim relating to the related settlement.
the payment shall not be taken into account as a relevant benefit in relation to the claim referred to in sub-paragraph (2) above except to the extent that it constitutes a surplus benefit by virtue of paragraph 6(5) below.'.

No. 128, in page 174, line 10, at end insert—
'(5) In any case where, by virtue of sub-paragraph (1) above, there is on a claim no postponement of the payment of capital gains tax, there shall be determined—

(a) whether there would still be no postponement if there were left out of account all relevant benefits (if any) referable to capital payments received under or by reference to a related settlement, and
(b) if so, what is the excess of all the other relevant benefits over 3⅓ times the aggregate of the tax referred to in paragraphs (a) and (b) of sub-paragraph (1) above,
and so much of those other relevant benefits as are referable to capital payments falling within sub-paragraph (2) of paragraph 5 above and equal (or do not exceed) that excess shall be regarded as a surplus benefit for the purposes of sub-paragraph (2A) of that paragraph.' .

No. 129, in page 174, line 19, leave out from 'which' to 'brought' in line 20 and insert
'is not a relevant benefit and has not been'.

No. 130, in page 174, line 23, after 'gains', insert 'or offshore income gains'.

No. 163, in page 174, line 24, leave out 'that' and insert 'any previous'.

No. 131, in page 174, line 37, leave out from beginning to 'above' in line 47 and insert—
'(4) In any case where—



(a) the amount of capital gains tax referred to in subparagraph (1)(a) above equals or exceeds 30 per cent. of the aggregate of those capital payments falling within sub-paragraph (1)(b) above which the beneficiary has received from the trustees of the settlement to which the claim relates, and
(b) apart from this paragraph, those capital payments would fall to be brought into account under subsections (3) and (4) of section 80 of the Finance Act 1981 (new provisions as to gains of non-resident settlements) in determining whether chargeable gains or offshore income gains should be attributed to the beneficiary by reference to any trust gains for the year of assessment in which the claim is made,
then, as respects that year of assessment and any subsequent year, those capital payments shall be left out of account for the purposes of the said subsection (3) and (4).

(5) In any case where—

(a) the condition in sub-paragraph (4)(a) above is not fulfilled, but
(b) the condition in sub-paragraph (4)(b) above is fulfilled, then, as respects the year of assessment in which the claim is made and any subsequent year, so much of the capital payments referred to in sub-paragraph (4) above as is equal to 3⅓ times the amount of capital gains tax referred to in sub-paragraph (1)(a) above shall be left out of account for the purposes of subsections (3) and (4) of section 80 of the Finance Act 1981.

(6) Where, by virtue of sub-paragraph (4) or sub-paragraph (5)'.

No. 132, in page 175, line 1, after `sub-paragraph', insert—
'(a) the payment shall to the same extent be left out of account for the purposes of the application on any other occasion of any provision of paragraphs 7 to 11 of this Schedule; and
(b)'.

No. 133, in page 175, line 8, at end insert—
'(7) Where any capital payments falling within sub-paragraph (1)(b) above which the beneficiary has received from the trustees of the settlement to which the claim relates are not such as are referred to in sub-paragraph (4)(b) above, sub-paragraph (6)(a) above shall apply to each of those payments in like manner as if it had been such a payment as is referred to in sub-paragraph (4)(b) above and the amount of it to be left out of account has been determined accordingly under sub-paragraph (4) or subparagraph (5) above.
7A.—(1) The provisions of this paragraph apply if, in a case where paragraph 7 above applies, the amount of capital gains tax referred to in sub-paragraph (1)(a) of that paragraph exceeds 30 per cent of the aggregate of those capital payments falling within sub-paragraph (1)(b) of that paragraph which the beneficiary has received from the trustees of the settlement to which the claim relates.
(2) In the following provisions of this paragraph—

(a) the capital payments falling within subparagraph (1)(b) of paragraph 7 above which the beneficiary has received otherwise than from the trustees of the settlement to which the claim relates are referred to as "related payments"; and
(b) any of those related payments which, apart from this paragraph, would fall to be brought into account as mentioned in sub-paragraph (4)(b) of paragraph 7 above is referred to as a "related section 80 payment".
(3) If sub-paragraph (2) of paragraph 7 above applies, then—

(a) as respects the year of assessment in which the claim is made and any subsequent year, any related section 80 payment shall be left out of account for the purposes of sub-paragraphs (3) and (4) of section 80 of the Finance Act 1981; and
(b) all the related payments shall be left out of account for the purposes of the application on any other occasion of any provision of paragraphs 7 to 11 of this Schedule.
(4) If sub-paragraph (3) of paragraph 7 above applies, then—

(a) as respects the year of assessment in which the claim is made and any subsequest year, so much

of any related section 80 payment as is equal to 3⅓ times the amount of capital gains tax released by that payment shall be left out of account for the purposes of subsections (3) and (4) of section 80 of the Finance Act 1981: and
(b) so much of each of the related payments as is equal to 3⅓ times the amount of capital gains tax released by the payment shall be left out of account for the purposes mentioned in subparagraph (3)(b) above.
(5) For the purposes of sub-paragraph (4) above, the amount of capital gains tax released by a related payment shall be detennined by the formula—
(A-B) * C/D

where—
A" is the capital gains tax referred to in subparagraph (1)(a) of paragraph 7 above;
B" is an amount equal to 30 per cent. of the aggregate of those capital payments falling within sub-paragraph (1)(b) of that paragraph which the beneficiary has received from the trustees of the settlement to which the claim relates;
C" is the related payment in question; and
D" is the aggregate of all the related payments.
(6) Where, by virtue of sub-paragraph (3)(a) or subparagraph (4)(a) above, the whole or any part of a related section 80 payment falls to be left out of account as mentioned in that sub-paragraph, section 45 of the Finance Act 1981 shall have effect in relation to the benefit received by the beneficiary which, in whole or in part, consists of that payment as if, in the year of assessnient in which the claim is made, chargeable gains equal to so much of that payment as falls to be so left out of account were, by reason of that payment, treated under section 80 of that Act as accruing to the beneficiary. '.

No. 164, in page 175, line 38, leave out from 'which' to 'brought' in line 39 and insert 'has not been'.

No. 165, in page 175, line 40, at end insert 'or offshore income gains'.

No. 166, in page 175, line 42, leave out 'that' and insert 'any previous'.

No. 167, in page 175, line 43, leave out from 'below' to `is' in line 44 and insert 'that capital payment'.

No. 136, in page 175, line 46, leave out from beginning to 'above' in line 2 on page 176 and insert —
'(3) A capital payment falling within sub-paragraph (2) above is not a related benefit which falls to be taken into account as mentioned in that sub-paragraph to the extent that it has already been taken into account on any previous operation of subparagraph (4) or sub-paragraph (5) of paragraph 7'.

No. 137, page 176, leave out line 5 an insert—
'(4) A capital payment falling within sub-paragraph (2) above is not a related benefit which falls to be taken into account as mentioned in that sub-paragraph'.

No. 138, in page 176, leave out lines 10 to 30 and insert—
'(5) Sub-paragraphs (3) to (6) of paragraph 7A above shall have effect for the purposes of this paragraph—

(a) as if any reference to a provision of paragraph 7 above were a reference to the corresponding provision of paragraph 8 above; and
(b) as if any reference to a related payment were a reference to a related benefit which falls to be taken into account as mentioned in sub-paragraph (2) above; and
(c) as if any reference to a related section 80 payment were a reference to a related benefit which falls to be taken into account as mentioned in sub-paragraph (2) above and which, apart from this paragraph, would fall to be taken into account under sub-paragraphs (3) and (4) of section 80 of the Finance Act 1981 in determining whether chargeable gains or offshore income gains should be attributed to the close relative concerned by reference to any trust gains for the year of assessment in which is made the claim referred to in subparagraph (2) above; and


(d) as if "B" in the formula in sub-paragraph (59) were nil; and
(e) as if any reference in sub-paragraph (6) to the beneficiary were a reference to the close relative concerned.'.

No. 139, in page 177, line 1, at beginning insert 'Subject to paragraph 11 below'.

No. 140, in page 177, line 6, leave out from 'settlement' to end of line 8.

No. 141, in page 177, leave out line 18 and insert—
(b) subject to paragraph 11 below, the capital payments received in that year as mentioned in sub-paragraph (39 above'.

No. 142, in page 177, line 20, leave out from 'year' to end of line 21.

No. 143, in page 177, line 34, leave out from beginning to 'fall' in line 43 and insert—
'11.—(1) If any capital payments received in any year of assessment as mentioned in paragraph 10(3) above.'.

No. 144, in page 178, leave out lines 1 to 3 and insert
'those capital payments shall be disregarded for the purposes of sub-paragraph (5) or, as the case may be, sub-paragraph (69) of paragraph 10 above except to the extent that the aggregate of those payments exceeds the chargeable gains and offshore income gains which in that year are treated under the said section 80 as accruing to the beneficiary or, as the case may be, the close relative; and any such excess is in the following provisions of this paragraph referred to as the balance of section 80 payments for that year'.

No. 145, in page 178, line 6, leave out from 'which' to there' in line 7 and insert
'there is a balance of section 80 payments'.

No. 146, in page 178, line 9, leave out from 'payments' to 'as' in line 10.

No. 147, in page 178, line 13, leave out from 'which' to `then' in line 14 and insert
'there is a balance of section 80 payments'.

No. 148, in page 178, line 20, leave out from 'of' to end of line 25 and insert
'section 80 payments for that year shall be determined by the formula:—
(E- F) *G/H
where
E" is the postponed tax, within the meaning of paragraph 10 above;
F' is an amount equal to 30 per cent. of any consideration for that year which falls within sub-paragraph (5)(a) of that paragraph;
G" is the balance of the section 80 payments for that year; and
H" is the aggregate of the capital payments (including that balance) taken into account under sub-paragraph (5)(b) of that paragraph for that year'.

No. 149, in page 178, line 29, leave out 'capital' and insert 'section 80'.

No. 150, page 178, line 35, leave out 'other capital payments' and insert
'capital payments which made up the other balance'.

No. 168, in page 178, line 5, at end insert
'11A. — (1) Where, by virtue of sub-paragraph (2) of paragraph 11 above, the whole or any part of a capital payment falls to be left out of account as mentioned in that sub-paragraph, it shall to the same extent be left out of account for the purposes of the application on any other occasion of any provision of paragraphs 7 to 11 of this Schedule.
(2) Where sub-paragraph (6) of paragraph 10 above applies for any material year of assessment, any capital payments which—

(a) fall to be taken into account under sub-paragraph (5)(b) of that paragraph for that year, and
(b) are not such as to fall within paragraph (11)(1) above,

shall be left out of account for the purposes referred to in subparagraph (1) above
(3) Where sub-paragraph (6) of paragraph 10 above does not apply for any material year of asessment, so much of any capital payment falling within paragraphs (a) and (b) of sub-paragraph(2) above is equal to 3⅓ times the amount of postponed tax released by that payment shall be left out of account for the purposes refered to in sub-paragraph (1) above.
(4) The amount of postponed tax released by a capital payment shall be determined for the purposes of sub-paragraph(3) above, except that, in applying that formula for those purposes, "G" shall be the amount of the capital payment in question.
(5) In this paragraph, "material year of assessment" shall be construed in accordance with paragraph 10(4) above.'.—[Mr. Hayhoe.]

Clause 70

WITHDRAWAL OF LIFE ASSURANCE PREMIUM RELIEF

Mr. Tim Smith: I beg to move amendment No. 75, in page 51, line 32, leave out 'if' and insert
'to the extent (but only to the extent) that'

Mr: Speaker: With this we shall take the following amendments: No. 76, in page 51, line 33, leave out 'benefits secured' and insert 'premiums payable'.

No. 77, in page 51, line 35, at beginning insert
'Except as provided by subsection (4A) below.'.

No. 78, in page 51, line 41, at end insert—
'(4A) If an option otherwise falling within the terms of subsection (4) above, provides only for an increase in the benefits secured by reference to a corresponding increase in an index mentioned in Schedule [Indexes to which section 70 refers],then subsection (4) shall not apply.'.

No. 93, new schedule—Indexes to which Section 70 refers—

"Retail Price Index Average Earnings Index"

Mr. Smith: I tabled similar amendments in Committee but did not move them. The amendments have a limited effect in the context of the abolition of life insurance premium relief. Their sole object is to change the emphasis in subsection (2) from benefits to premiums. They would not increase the scope of life assurance premium relief available to policy holders who took out policies before 14 March 1984.

Mr:. Hirst: I shall not detain the House for long, but I wish to refer to amendment No. 77 which stands in my name. The purpose of the amendment is straightforward. A number of insurance policies contain an option that allows the policy holders to increase the benefit under a policy in accordance either with the retail price index or the index of average earnings.
I accept that policy holders who, from the start, have uprated the benefits under their policies by either the RPI or the average earnings index are not affected by the abolition of life insurance premium relief. The small category of policies covered by my amendment are thosewhere the policy holder has an option within the policy to index the benefits.
Unlike amendments Nos. 75 and 76, the cost of my amendment to the Treasury would be small because of the comparatively small number of policy holders who have that option. Nevertheless, the point must be made that those policy holders who have qualifying policies took out policies that contained an option, and the ability to exercise that option is merely a fulfilment of the conditions


of the policy. I hope that my hon. Friend the Economic Secretary to the Treasury can give me some encouragement this morning.

The Economic Secretary to the Treasury (Mr. Ian Stewart): My hon. Friends the Members for Beaconsfield (Mr. Smith) and for Strathkelvin and Bearsden (Mr. Hirst) have raised interesting points about options. My hon. Friend the Member for Beaconsfield asks that premium relief should be disallowed only on the excess premium if a policy is enhanced. That would impose an impossible administrative burden not only on the Inland Revenue but on the life offices. It would be difficult, if not absolutely unworkable, to monitor and deal with that proposal.
I understand that the matter will be dealt with in future by top-up policies. As the market is so competitive, there should be no difficulty in policy holders obtaining that sort of cover.
My hon. Friend the Member for Strathkelvin and Bearsden questioned the position on the uprating of policies where there is an option for indexing to the RPI. Such a policy would not qualify anyway, and the amendment would require the conditions for qualifying policies themselves to be amended for a potentially unlimited commitment.
An option is not a commitment. If there is a clear commitment on premiums, premium relief will continue. If there is not, it will not be available. The options are often available not for cash purposes but for health or other reasons. Therefore, I must tell my hon. Friend that I do not find his proposal acceptable

Mr:. Tim Smith: Amendment, by leave, withdrawn.: In the light of my hon. Friend's remarks, I beg to ask leave to withdraw the amendment.

Clause 81

LIMITATIONS ON DIRECTION-MAKING POWER

Amendment made: No. 179, in page 65, line 32, at end insert—
`(bb) the public quotation condition set out in Part IIA of that Schedule is fulfilled with respect to that period; or'.—[Mr. Ian Stewart.]

Schedule 17

CASES EXCLUDED FROM DIRECTION-MAKING POWERS

Amendment proposed, No. 169, in page 192, line 24, after 'and', insert
`subject to sub-paragraph (7A) below'.—[Mr. Ian Stewart.]

Mr. Speaker: With this we may discuss also the following Government amendments Nos. 170 to 172.

Amendment No. 173, in page 193, line 30, at end insert—
'(7A) This sub-paragraph applies where—
(a) at any time in the accounting period in question the issued shares of the controlled foreign company are of more than one class, and
(b) at the end of that accounting period persons resident outside the United Kingdom have interests in the company, and
(c) sub-paragraph (5) above does not apply and in a case where this sub-paragraph applies the appropriate portion of the profits referred to in sub-paragraph (1)(c) above is that portion which it is just and reasonable to attribute to the interests in the company of persons resident in the United Kingdom at the end of that accounting period'.

Sir William Clark: I should like to ask my hon. Friend for confirmation that discussions are going on with interested parties about controlled foreign companies. I hope he will assure me that discussions are continuing. There is growing concern that this rushed legislation on controlled foreign companies could affect our export potential. It is vital that the talks should continue. I understand that they are taking place, but perhaps my hon. Friend will confirm that.

Mr:. Ian Stewart: I have had extensive consultations with representative bodies and other interested parties on the legislation, as I undertook to do between the Committee stage and Report. I compliment my hon. Friend the Member for Croydon, South (Sir W. Clark) and my hon. Friends the Members for Beaconsfield (Mr. Smith) and for Lewisham, West (Mr. Maples) on the constructive parts that they have played.
The Amendment Paper contains a number of amendments relating to the control of foreign companies. They do not change the import of the legislation, but clarify it in several cases where it was not regarded as entirely clear.
We have introduced an extra door, a way in which a company can be excluded from legislation, in amendments Nos. 179 and 180, if it is quoted on a recognised stock exchange. We have widened the door for the acceptable distribution test in amendments Nos. 169 to 172. We have improved the exempt activities test with amendments Nos. 119, 120 and 121. Those are important clarifications. The legislation will retain its full impact in the way that the Government intended, but will not prove needlessly onerous in genuine and bona fide cases. I am able to give my hon. Friend the asssurance that he wishes.

Sir William Clark: I am sorry, but I did not quite understand my hon. Friend. The assurance that I asked for was that discussions with interested parties were continuing

Mr:. Stewart: Discussions had to be completed before the Report stage, in time to introduce the amendments before the House. They reflect our full discussions. With legislation as complicated as this, which it must be to fulfil the primary purpose and at the same time be fair and not unduly onerous to the business community, there are likely to be cases where certain matters may need to be considered to see how the legislation works in practice. I shall be only too pleased to consider with the representative bodies and any others any points of practical difficulty which may arise after this stage. I hope that my hon. Friend will not hesitate to draw to my attention any cases of that kind of which he is aware.

Amendment agreed to .

No. 170, in page 193, line 11 after 'is', insert
`subject to sub-paragraph (7A) below'.

No. 171, in page 193, line 18 after 'is', insert
`subject to sub-paragraph (7A) below'.

No.172, in page 193, line 30 at end insert—
'(7A) In any case where the immediate interests held by persons resident in the United Kingdom who have indirect interests in a controlled foreign company at the end of a particular accounting period do not reflect the proportion of the shares or, as the case may be, shares of a particular class in the company by virtue of which they have those interests (as in a case where they hold, directly or indirectly, part of the shares in a company which itself holds, directly or indirectly, some or all of the shares in the controlled foreign company) the number of those shares shall be, treated as reduced for the purposes of sub-paragraph (4)


or, as the case may be, sub-paragraph (6) above to such number as may be appropriate having regard to—
(a) the immediate interests held by the persons resident in the United Kingdom; and
(b) any intermediate shareholdings between those interests and the shares in the controlled foreign company'.

No. 119, in page 196, line 31, at end insert—
'(4A) Any reference in sub-paragraph (3) or sub-paragraph (4) above to a company which a holding company controls includes a reference to a trading company in which the holding company holds the maximum amount of ordinary share capital which is permitted under the law of the territory—

(a) in which the trading company is resident; and
(b) from whose laws the trading company derives its status as a company.'

No. 121, in page 200, line 37, leave out from 'and' to
'or' in line 38 and insert
'either its 51 per cent. subsidiaries or companies falling within paragraph 6(4A) above.'.

No. 120, in page 197, line 26, at end insert—
`(aa) of services provided through any other person whose profits or gains from the provision of the services are within the charge to tax in the United Kingdom and who provides the services for a consideration which is, or which is not dissimilar from what might reasonably be expected to be, determined under a contract entered into at arm's length; or'.

No. 180, in page 201, line 39, at end insert—

'PART IIA

THE PUBLIC QUOTATION CONDITION

12A.—(1) The provisions of this part of this Schedule have effect for the purposes of paragraph (bb) of subsection (1) of section 81 of this Act.

(2) Subject to paragraph 12B below, a controlled foreign company fulfils the public quotation condition with respect to a particular accounting period if—
(a) shares in the company carrying not less than 35 per cent. of the voting power in the company (and not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) have been allotted unconditionally to, or acquired unconditionally by, the public and, throughout that accounting period, are beneficially held by the public; and
(b) within the period of twelve months ending at the end of the accounting period any such shares have been the subject of dealings on a recognised stock exchange situated in the territory in which the company is resident; and
(c) within that period of twelve months the shares have been quoted in the official list of such a recognised stock exchange.

12B.—(1) The condition in paragraph 12A(2) above is not fulfilled with respect to an accounting period of a controlled foreign company if at any time in that period the total percentage of the voting power in the company possessed by all of the company's principal members exceeds 85 per cent.

(2) For the purposes of paragraph 12A(2) above, shares in a controlled foreign company shall be deemed to be beneficially held by the public if they are held by any person other than—
(a) a person connected or associated with the company; or
(b)a principal member of the company;
and a corresponding construction shall be given to the reference to shares which have been allotted unconditionally to, or acquired unconditionally by, the public.

12C. — (1) References in this Part of this Schedule to shares held by any person include references to any shares the rights or powers attached to which could, for the purposes of section 302 of the Taxes Act (meaning of "control") be attributed to that person under subsection (5) of that section (nominees).

(2) For the purposes of this Part of this Schedule—
(a) a person is a principal member of a controlled foreign company if he possesses a percentage of the voting power in the company of more than 5 per cent. and,—
(i) where there are more than five such persons, if he is one of the five persons who possess the greatest percentages, or

(ii) if, because two or more persons possess equal percentages of the voting power in the company, there are no such five persons, he is one of the six or more persons (so as to include those two or more who possess equal percentages) who possess the greatest percentages; and
(b) a principal member's holding consists of the shares which carry the voting power possessed by him.

(3) In arriving at the voting power which a person possesses, there shall be attributed to him any voting power which, for the purposes of section 302 of the Taxes Act, would be attributed to him under subsection (5) or subsection (6) of that section (nominees, controlled companies and associates).

(4) In this Part of this Schedule "share" includes "stock".' —[Mr. Ian Stewart.]

Clause 82

RESIDENCE AND INTERESTS

Amendment made: No. 114, in page 67, line 36, at end insert 'or any other person'.—[Mr. Ian Stewart.]

Schedule 16

ASSUMPTIONS FOR CALCULATING CHARGEABLE PROFITS, CREDITABLE TAX AND CORRESPONDING UNITED KINGDOM TAX OF FOREIGN COMPANIES

Amendment made: No. 122, in page 187, line 17, leave out from `if' to end of line 21 and insert
`on the apportionment of the company's chargeable profits for the relevant accounting period under subsection (3) of section 80 of this Act, more than half of the profits—
(a) which are apportioned to United Kingdom resident companies, and
(b) which give rise to an assessment on any such companies under subsection (4)(a) of that section,
are apportioned to the United Kingdom resident company or companies concerned.—[Mr. Ian Stewart.]

Clause 85

APPORTIONMENT OF CHARGEABLE PROFITS AND CREDITABLE TAX

Amendments made: No. 115, in page 71, line 16, leave out 'who' and insert
`each of whom has an unvarying holding of shares of the same class'.

No. 116, in page 71, line 17, leave out
'have held shares of the same class'.

No. 117, in page 71, line 19, leave out 'that shareholding' and insert
`his holding of those shares'.

No. 118, in page 71, line 20, leave out 'held by them' and insert
'comprised in each of their holdings'.

No. 155, in page 71, line 31, leave out from `by' to 'is' in line 32 and insert
'a person who holds that interest indirectly or, as the case may be, by two or more persons (in this subsection referred to as "holders") who, taken together, hold that interest indirectly and, in particular, if that person or one or more of those holders'.

No. 156, in page 71, line 33, leave out
'the one who is so resident'
and insert
`that person or, as the case may be, those holders'. —[Mr. Ian Stewart.]

Clause 94

CHARGE TO INCOME OR CORPORATION TAX OF OFFSHORE INCOME GAIN

Sir William Clark: I beg to move amendment No. 97,in page 88, line 9, at end insert—
'(lA) Where an offshore income gain arises by reason of the fact that the offshore fund has been a non-qualifying fund for part only of the period of ownership of the material interest of the person making the disposal and it would have been a distributing fund but for subsection (3)(a), (b) or (c) of Section 93 of this Act, the offshore income gain shall be reduced by the proportion that the number of account periods comprised within the said period of ownership for which the fund has been certified as a distributing fund bears to the total number of account periods comprised within that period. Provided that the offshore income gain shall not be less than the income available for distribution but not distributed in respect of the interest of which that person has disposed for the account periods for which the offshore fund was not certified as a distributing fund. For the purpose of this subsection income available for distribution shall include capital profits realised upon the disposal or part disposal of the interest or interests of the fund that caused the fund to be a non-qualifying fund during the said period of ownership.'.
I trust that the House will forgive me if I speak to the amendment, having sat here all night and seen so manyamendments made formally.
A principal cause for concern in the legislation on offshore funds is the crude bludgeoning effect whereby if an offshore fund cannot always establish itself as a distributor fund, the consequential income tax charge on the investor is based not only on undistributed, rolled-up income, but on any increase in value arising fom capital growth within the fund. The United Kingdom standards would make it subject to capital gains tax, not income tax. That is inconsistent in legislation, the announced target of which was income roll-up funds.
The justification for this crude approach by the Government or the Treasury is that it is too complicated to distinguish capital gains tax, but that did not stop the draftsmen drafting complicated clauses on controlled foreign companies in order to deal with the equalisation arrangements.
The funds were told in November 1983 that they had to put their funds in order so that they could qualify for the tax position before the legislation. They had to get the funds in order by 1 January. How can that be done within five weeks? My amendment seeks in some way to ameloriate that harsh effect of the legislation. I know that it is too late now for my hon. Friend to accept the amendment, but will he give an undertaking that during the coming year he will keep a close watch on the matter and consider whether in the next Finance Bill we can come forward with more suitable and fairer amendments?

Mr. John Moore: I assure my hon. Friend that I shall give the matter close attention throughout the coming year. However, I cannot accept that outside industry did not receive sufficient notice. I shall not go into the details, but my hon. Friend will be aware of the relaxing and flexible changes that we made in Committee. To that extent, some of the problems that might have occurred should not now do so. I shall watch the matter with great care, and I hope, on that basis, that my hon. Friend will seek leave not to press his amendment.

Sir William Clark: In view of that explanation, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.Finance

Sir William Clark: On a point of order, Mr. Speaker. Do we not have to put the Question on the amendments and then the Question, That the clause, as amended, stand part of the Bill?

Mr. Speaker: That is the case during the Committee stage of the Bill. This is the Report stage, and that is not necessary.

Clause 121

RECOVERY OF CERTAIN TAX ASSESSED ON NON- RESIDENTS

Amendments made: No. 88, in page 110, line 27, leave out from 'but' to 'or' in line 29 and insert
'more than one licence under the Petroleum (Production) Act 1934 is the basis for the assessment'.

No. 89, in page 110, line 36, leave out from first 'the' to end of line 38 and insert
'amount of the tax remaining unpaid under the assessment which is attributable to the profits or gains in respect of which that licence was the basis for the assessment,'.

No. 90, in page 110, line 41, leave out from beginning to 'as' in line 6 on page 111 and insert—
'(1A) For the purposes of sub-paragraph (1) above the amount of the tax remaining unpaid under the assessment which is attributable to the profits or gains in respect of which any licence in question was the basis for the assessment is such part of the total amount of that tax as bears to that total amount the same proportion'.

No. 91, in page 111, line 11, leave out from beginning to end of line 25.

No. 92, in page 111, line 28, at end insert—
'( ) In paragraph 7 of that Schedule, at the end there shall be added the words
"or, if the certificate is cancelled under paragraph 8 below, to any such tax which becomes due after the cancellation of the certificate in respect of profits or gains arising while the certificate is in force (referred to below in this Schedule as precancellation profits or gains)".
( ) After paragraph 7 of that Schedule, there shall be inserted the following paragraph—
7A. — (1) Paragraph 7 above is subject to the following provisions of this paragraph in any case where—
(a) after the cancellation of a certificate issued to the holder of a licence under that paragraph tax is assessed as mentioned in paragraph 4(1)(a) or (b) above on the person who applied for the certificate; and
(b) the relevant profits or gains include (but are not limited to) pre-cancellation profits or gains.
(2) In this paragraph "the relevant profits or gains" means—

(a) in a case where the amount of the tax remaining unpaid under the assessment which, but for paragraph 7 above, the holder of the licence could be required to pay by a notice under paragraph 4 above (referred to below in this paragraph as the amount otherwise applicable in his case) is the whole of the amount remaining unpaid, all the profits or gains in respect of which the assessment was made; or
(b) in a case where the amount otherwise applicable in his case falls under paragraph 4A above to be determined by reference to profits or gains in respect of which the licence was the basis for the assessment, the profits or gains in question.
(3) In any case to which this paragraph applies, the amount the holder of the licence may be applied to pay by a notice under paragraph 4 shall be the amount otherwise applicable in his case reduced by the amount of the lax remaining unpaid under the assessment which is attributable to the pre-cancellation profits or gains, together with a corresponding proportion of any interest due as mentioned in paragraph 4(1).


(4) For the purposes of sub-paragraph (3) above the amount of the tax remaining unpaid under the assessment which is attributable to the pre-cancellation profits or gains is such part of the amount otherwise applicable in the case of the holder of the licence as bears to the whole of the amount otherwise so applicable the same proportion as the proportion borne by the amount of the pre-cancellation profits or gains to the total amount of the relevant profits or gains.
( ) After paragraph 8 of that Schedule, there shall be inserted the following paragraph—
8A. —(1) For the purposes of paragraphs 4A and 7A above and this paragraph, profits or gains in respect of which an assessment is made as mentioned in paragraph 4(1)(a) or (b) above are profits or gains in respect of which any licence in question was the basis for the assessment if those profits or gains fall within paragraph 4(1)(a) or (b) by reference to that licence.
(2) In determining—
(a) for the purposes of paragraph 4A(1A) or 7A(4) above, the amount of the profits or gains in respect of which any licence was the basis for an assessment; or
(b) for the purposes of paragraph 7A(4) above, the amount of any pre-cancellation profits or gains; the Board shall compute that amount as if for the purposes of making a separate assessment in respect of those profits or gains on the person on whom the assessment was made, making all such allocations and apportionments of receipts, expenses, allowances and deductions taken into account or made for the purposes of the actual assessment as appear to the Board to be just and reasonable in the circumstances.
(3) A notice under paragraph 4 above as it applies by virtue of paragraph 4A or 7A above shall give particulars of the manner in which the amount required to be paid was determined.
(4) References in paragraphs 4A, 7 and 7A above and in this paragraph to profits or gains include chargeable gains.".'.—[Mr. Ian Stewart.]

Mr. John Moore: On a point of order, Mr. Speaker. May I on behalf of the Government—I am sure that I speak for all hon. Members—thank, through you, all

the staff of the House, the staff of your office, the refreshment areas, the cleaners, the police and Hansard. They have enabled us to continue our lengthy proceedings in such comfort and at such convenience. They have made sure that the democratic processes can continue. Again, I thank you

Mr:. Rooker: Further to that point of order, Mr.Speaker. I reiterate what the Minister said. The staff of the House have served the House as our servants extremely well and diligently over some 180 hours. Those who report our proceedings and other staff of the House will know that the Bill was scrutinised properly on behalf of their fellow citizens in Britain. We could not have done that work as legislators without your help, Mr. Speaker, and that of the rest of the staff of the House

Mr:. Speaker: I thank the hon. Member for Croydon, Central (Mr. Moore) and the hon. Member for Birmingham, Perry Barr (Mr. Rooker) most warmly. I shall ensure that their thanks are passed to the staff of the House. I am very grateful indeed.

To be read the Third time this day.

BUSINESS OF THE HOUSE

Motion made, and Question proposed,
That at the next sitting of the House on which Motions are moved on behalf of the Committee of Selection, such Motions may be proceeded with, though opposed, for one and a half hours after the first Motion has been entered upon, and, if proceedings on the Motions have not been disposed of by that hour, any Amendments to the first Motion which may have been selected by Mr. Speaker may be moved, the Questions thereon shall be put forthwith, and Mr. Speaker shall then put the Question upon the said Motion and any Questions necessary to dispose of the other Motions and of any Amendments moved thereto which have been selected by him; and that, notwithstanding the practice of the House, each Motion shall be regarded as a single Motion. —[Mr. Garel-Jones.]

Hon. Members: Object

Mr. Speaker: Objection taken.

Sealink UK Ltd.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones .]

Mr. Stephen Ross: I offer my apologies to the Minister who is to reply to my Adjournment debate. He has had one false start from me on the subject when, unfortunately, I was unable to proceed with the debate. I have kept him up all night and no doubt he has had to rearrange his appointments, and I apologise to him for that.
I am grateful for the opportunity, even at this hour of the morning, to raise the important subject of the imminent privatisation of Sealink. In addition to myself, many of my constituents—and certainly those who work for Sealink on the Isle of Wight route—are worried about what is happening to their company, and are anxious to know who is to be their future employer.
Although Sealink maintains about 20 passenger services from various ports of the United Kingdom, and other cargo-only routes, I do not believe that any other hon. Member represents a constituency whose whole economy is so dependent upon the frequency, reliability and cost of the shipping schedules of one almost monopolistic operator, Sealink; hence my concern.
As I said in a transport debate on 25 April, in the year ending September 1983, Sealink carried 70 per cent. of the 6.37 million passenger movements to and from the Isle of Wight, 78 per cent. of all car movements, and 70 per cent. of commercial vehicle movements. We have every reason to believe that the percentages have increased markedly since then with the introduction of the two new 150-car capacity roll-on roll-off ferries on the PortsmouthFishbourne route and the transfer of a larger vessel to the Lymington-Yarmouth service. Their only competitor for freight traffic is Red Funnel, operating from Cowes to Southampton, a longer route taking nearly an hour, with a much less frequent timetable and no boats in service during the night hours. We have a very good regular service from Sealink and it goes through the night, particularly during the summer months. We have no regular air operators and the hovercraft does not carry vehicles. Neither does the hydrofoil.
Therefore, I was particularly alarmed by the answer that I received last Friday to a question that I tabled to the Secretary of State for Transport, asking that a report be made to this House before any bid for Sealink is accepted. That request was met with a flat no, despite all the recent comments in the national press about the state of the negotiations and the likely bidders.
Surely the House is entitled to be treated better—and with rather more respect—when public assets are being sold and the economy of a constituency is so vitally affected. I quote some recent national newspaper headlines, such as
Sealink sale fiasco",
Seasick Sealink
and
State to retain a Sealink stake".
We do not know what that stake may be. I gather that it refers only to some reserve power should more than 25 per cent. of Sealink's fleet be moved out of United Kingdom waters, which has defence implications. I should like clarification on that point.
If the Government were now to decide to retain a substantial holding in the company, due to the present unsatisfactory circumstances surrounding the sale, I believe that that would be highly desirable. At least it would give us some confidence for the future.
It seems to be common knowledge that until very recently there were four serious bidders for the company, Trafalgar House having withdrawn. I am now told on good authority that both Ellerman and Common Brothers are non-starters and are reported to have said so publicly. That leaves us with the National Freight Company and Sea Containers, whose well-known boss is Mr. James Sherwood of Orient Express fame.
Morgan Grenfell, the merchant bankers handling the sale, claims that there are three and a half bidders. It also says that all the bids are conditional, in view of the continuing uncertainty as to important factors affecting the purchase price. I am not quite sure we have three and a half bidders but that is what we are told.
That is why I suggested to the Secretary of State on Monday that he should call a halt to the negotiations and let Sealink get back to the business of running a shipping line, at least for the foreseeable future. I do not expect that he will do that, so 1, must press for assurances before a sale is concluded.
I have said publicly many times that I am not opposed in principle to private investment in Sealink. However, handing over total control to a largely American company, based in Bermuda, raises hackles, and I am sure that that will also be the view of the unions.
Far from confirming the statement in the House on Monday by the hon. Member for Romsey and Waterside (Mr. Colvin), Mr. Jim Slater of the National Union of Seamen, speaking on Radio 4 yesterday, threatened strong action against any sale of Sealink out of the public sector. He made it clear that he would fight such a sale.
However, the Isle of Wight boats are largely manned by members of the National Union of Railwaymen and, until now, they have been prepared to await events. Some would hope to acquire a shareholding, as was provided for in the sale of the NFC.
Surely the 9,633 employees of Sealink are entitled to have some say about their future. To ignore them is to ask for trouble. They have served us well and the men operating the Isle of Wight boats did not respond when they were called out on strike by the NUR a couple of years ago. They suffered in consequence but we were grateful to them. The knew what damage a strike would do to our economy.
I always favoured the consortium approach, not because I have any financial interest—I am never likely to have such an interest—but because it made provision for employee participation, kept the present management together, at least for the time being, and brought in outsiders with a knowledge of the industry and a record of success.
The NFC owns Islandlink, the island's major road haulier, and much will depend on that company's rates being kept within the means of local manufacturers. There is an excellent relationship between the ferry management, the NFC and the local management of Islandlink, and it is vital that we have continuing close co-operation between the ferry operators and the hauliers. That is where the experience of existing staff is of paramount importance.
It is vital to the bigger manufacturers that space is reserved for them on the ferries at particular times of the


day. Our local ice cream manufacturer, based in Ryde, supplies Harrods and we have a laundry that collects dirty clothes from the Army at Aldershot and serves some of the London theatres. Other businesses that may be affected include boat builders and furniture manufacturers, as well as Westland and Plessey. The centre wing-spans of the Short 330 and 360 are made in East Cowes and transported across the Solent and on to Northern Ireland.
Is the through-booking system secure? What about the cheap day tickets, pensioners' rail cards and out-of-season bargain trips? Can my constituents count on the continuation of the discount of between 25 and 35 per cent., according to season, which is available to them if their cars are licensed on the island? What about the arrangements for the work force at Wellworthys who take the Yarmouth ferry to Lymington to work on the night shift and travel at a special rate? No doubt there are many other such interests.
Those are the sort of questions to which we need answers. They may seem mundane, but they are important to everyday life on the island, where the cost and frequency of ferries are major issues. They are raised with me every time I knock on doors during general election campaigns. One cannot reach anywhere on the mainland without catching a boat, hydrofoil or hovercraft.
I remind the Under-Secretary of State of the Secretary of State's statement in the House on 21 May that a prospective purchaser's ability and willingness to extend to the Sealink work force an opportunity to participate in a share ownership scheme would have a considerable bearing on its acceptability. I trust that that still holds good today. However, I do not deny that there is room for improvement in the management of the boats. Worker participation is the best way to achieve more efficiency.
The consortium gave the following undertakings to the British Railways Board. First, it will develop the company as an entity and not split it up. Secondly, it will continue its present flag registration policy. Thirdly, existing employment rights, including pension entitlement, will be fully safeguarded. Fourthly, the concessionary travel rights to existing employees will be maintained. Fifthly, the special relationship with British railwaymen will be maintained and secured by contracts. Sixthly, after the acquisition, a prospectus should be issued to the Sealink United Kingdom staff, who will be invited to subscribe for 20 per cent. of the equity on advantageous terms. It also undertook to elect a shareholder director from the Sealink United Kingdom staff following the issue of shares to them.
How do we know that another buyer will not split up the organisation? I believe that it is a requirement—I cannot confirm it — that the Irish routes are to be maintained although they are losing money. A person getting a bargain purchase could do very well by selling off the profitable routes— largely those to the Isle of Wight—surplus ships and harbour facilities. The Isle of Wight county council has tried time and again to establish whether the island's services could be separately tendered for. The answer has always been no. If the Government changed their mind, a local consortium could be established to take them over. It would be infuriating, to put it mildly, if that option were offered to us by an American at a later date.
When we applied to British Rail, and later to its merchant bankers, Morgan Grenfell, for a copy of the sales prospectus, we were refused and the door to a local approach to a split-up has remained firmly closed. No doubt the Secretary of State will receive a recommendation from the British Railways Board within the next few weeks. I ask the Under-Secretary of State to look after and protect the interests of my constituents when that day of decision arrives. He knows my constituency and visited it recently. I am sure that he will give me those assurances today.

The Parliamentary Under-Secretary of State for Transport (Mr. David Mitchell): I welcome this opportunity to report to the House the latest position on the privatisation of Sealink. I also recognise the particular importance which Sealink has to the hon. Member for Isle of Wight (Mr. Ross) and his constituents, so I shall try in the time available to me to deal with as many as I can of the specific points he has raised on the Isle of Wight.
First, it might be helpful if I briefly recall the background to the privatisation policy on Sealink, and the reasons which underlie it.
The hon. Gentleman first raised the matter some months ago. I am glad that he has recovered from the indisposition, which prevented him on that occasion from bringing the matter before the House. We have both waited a long time for this debate.
I shall first describe the background. With a turnover of £260 million, Sealink UK Ltd. is one of Europe's largest ferry companies. It operates 40 ships on 23 routes around the United Kingdom. It owns seven major harbours — Folkestone, Heysham, Holyhead, Newhaven, Parkeston Quay (Harwich), Stranraer and Fishguard — and several other smaller harbours and piers.
Sealink UK Ltd. was formed in 1979 as a Companies Act subsidiary of the British Railways Board to take over the board's shipping and harbour undertakings. Although these undertakings originally evolved from the ferry services provided by the railways for "classic"—that is, foot-passengers, Sealink has or some years now been one of the leaders in the accompanied car and roll-on/roll-off freight markets. More recently it has also taken a major share of the rapidly developing coach market. So while rail-generated traffic remains an important part of Sealink's business, it has long since ceased to be the major part of its activities.
It was against this background that the British Railways Board and the Government agreed, in 1980, that Sealink should be transferred to the private sector at the earliest suitable opportunity. The board and the Government took the view that Sealink would benefit both from the commercial freedom which private sector status would bring and from access to private capital to carry out the investment it needs to compete successfully with the private sector ferry companies. I shall discuss in a moment the investment which I know concerns the hon. Gentleman. The board also saw advantages to the railway from the privatisation of Sealink, since it will allow the board to concentrate its resources — financial and managerial—on the main railway business. In terms of the board's external financing requirement, which includes the total investment in leased assets, as well as the cash requirement, there were sums which the railway could well have used itself in years when the external


financing limit was a major restraining factor influencing railway policies on investment. Looking ahead, Sealink has been planning to invest more than £20 million a year during the next few years. British Rail saw no reason why investment on that scale in a commercial shipping business needed to come from within the railway's investment resources.
Those reasons were fully debated in 1981 when the Transport Act of that year was considered by the House. that Act gave the board the necessary powers to sell the shares in its subsidiaries, including Sealink. Ministers explained to the House then that British Rail would be in the lead in devising the method and timing of privatisation to suit the needs of each business, although, in the case of a sale of shares in a subsidiary, the Secretary of State's consent would be required to the eventual sale.
The Board set up British Rail Investments Ltd. to act as a holding company for the subsidiaries to be privatised, and to spearhead the privatisation programme. So far, by its efforts, the railway has disposed of its interests in hotels, in hovercraft, and in more than £200 million of non-operational property. In the case of Sealink the scope for privatisation has depended on the completion of two major tasks. First, the management of Sealink had to return the company to profit, after a number of years of losses. Sealink's 1983 accounts recorded a profit for the first time since 1979. The second task was to carry out the necessary separation of Sealink from the railway, and to put the continuing commercial relationship between the two organisations on a contractual basis. That has proved to be a very major task indeed, since the shipping activities had been closely intertwined with the operations of the railway. The relationship was built up over 100 years or more.
Railway services on an internationally agreed timetable to meet boats must be scheduled into many harbour slots. Accounting arrangements must share the ticket income between several international railways and Sealink. Railway lines run right into the harbours. Inevitably, there are difficult problems in settling the demarcation of property and of responsibility. Sealink has shared British Rail's financial services, telecommunications, computing, police and medical services. Several dozen contracts had to be drawn up to put all those arrangements on an arms-length basis. The process has taken appreciably longer than British Rail had originally hoped, and the task proved to be even bigger than it had foreseen. It has certainly taken longer than I expected. The hon. Gentleman will understand that in view of our discussions last year.
Following discussions with the Government on the possible options for the method of sale, the railways board, at the beginning of this year, decided to sell the company by tender to a commercial buyer. This method of sale allows the potential purchasers access to much more of the commercial information about the company than could be provided in a flotation. Thus, although a flotation would only become feasible once a consistent profit record has been established, a commercial sale will allow bidders to assess the underlying worth of the company at a much earlier stage. The board took the view—which we fully supported — that the company urgently needed the investment and commercial stimulus which private sector status would bring.
The board's merchant bank, Morgan Grenfell and Co. Ltd., invited expressions of interest in purchasing the company in March of this year. As a result, about a dozen

parties stated that they had such an interest, including several major companies with shipping interests and a consortium which included Sealink's own management, as mentioned by the hon. Gentleman. Detailed discussions then took place between Morgan Grenfell and those parties. They were provided with an information memorandum about Sealink and, in the light of that, those bidders who remained keen to proceed were subsequently supplied with complete information about the company.
Formal tenders were invited last week and bids were received last Friday. The bids are now being considered carefully by the board in the light of criteria which were explained when offers of interest were invited. The price offered will obviously be a major criterion in deciding the successful bidder. The board and the Government have made it clear that if none of the bids represents an acceptable price for the company, the sale will not proceed. I hope that explains the background to where we currently stand on the privatisation of Sealink.
I come now to the implications for the Isle of Wight, about which the hon. Gentleman expressed concern. He explained Sealink's role on the cross-Solent services and the importance of Sealink's services to the island's economy — for example, to the business community which the hon. Gentleman mentioned — and I congratulate his constituent on successfully selling to Harrods in London and the other businesses that he described.
I have travelled on some of the ferries since taking up my present appointment, and I am sure that the lion. Gentleman will agree that the island is well served by ferries. After all, it has six regular services, two of which have direct railway connections, and three of which provide multi-purpose passenger, car, and roll-on/roll-off freight facilities. Considerable investment has taken place in all the services in recent years, particularly on three Sealink services. Two new car ferries have recently been introduced on to the Portsmouth-Fishbourne route at a cost of £10 million. Each new ship has double the vehicle capacity of the largest of the ships previously operating on the service.
The addition of these new ships allowed the larger of the older vessels to be concentrated on Sealink's Lymington-Yarmouth service, so increasing the capacity there. In addition, a new terminal for the Fishbourne service was opened recently at Portsmouth and new "linkspan" ramps have been installed at Fishbourne and Yarmouth. In total, Sealink has invested over £18 million in its Isle of Wight services in recent years. The hon. Gentleman nods agreement. It is indeed a substantial sum.
I appreciate that the citizens of the Isle of Wight feel sensitive about their communications with the mainland, and the hon. Gentleman attaches particular importance to one set of ferries—the Portsmouth-Ryde route—where the existing vessels are ageing, and where Sealink had proposed investment in replacement ferries. As the hon. Gentleman said, the Government were not prepared to give approval for that investment in the run-up to privatisation.
We discussed this at considerable length in the latter part of last year. We felt that this decision should be taken by the directors of Sealink after privatisation. We took that view largely because the success of the investment — which would have cost nearly £9 million—would have been heavily dependent on a market judgment. There is more than one option. There are fast ferries, as proposed,


but with high amortisation costs, in competition, at least in part, with hover or perhaps with lower-cost slower vessels ordered sooner or later. Commercial decisions must be made, and we felt it right that the decision should be made by the new proprietors of the business.
To be worth while, the new fast ferries would need a dramatic increase in traffic on the Portsmouth-Ryde service, or a willingness of travellers to pay higher fares, or both. The investment was not put forward on the basis that it would reduce the costs of running the service.
There would be some manning reductions but operating costs in total, after taking account of the capital charges, would be higher than at present. Thus, the justification for the investment hinges on the new ships offering a better service and attracting more passengers, some of whom would be prepared to pay a premium fare. That is a significant commercial judgment, and I believe it is right for the new owners to take it.
I emphasise that I recognise that the present ferries on the Portsmouth-Ryde service are old, that they are at risk to breakdowns and that when they are being surveyed in the winter the relief ferry which is brought in is not entirely satisfactory.
I have travelled to the island by this route and I understand the problems. I am certainly not seeking to suggest that the present arrangements can continue indefinitely. Sealink has never suggested to me or my Department that the investment is urgent on commercial grounds. Its investment submission to me read:
Existing ships 'Brading' and `Southsea' are in reasonable condition for their ages, but will require heavy expenditure in 1985, followed by further moderate expenditure in 1990; they could then continue in service until about 1997 (when they would be almost 50 years old) but with considerable risks of major failure occurring and with considerably increasing routine maintenance costs.
On the facts as I know them, I think that that was a fair and balanced statement. It was supported by the information that I had received from our own surveyors, who inspect the vessels every year.
I ask the hon. Gentleman to consider the problem in the overall context of ferry services to the island. As I have said, there are six regular services and there has been substantial investment by Sealink and others in recent years. On any reasonable assessment, the island is not doing badly for ferry services.
The hon. Gentleman is concerned about the exploitation of the people of the Isle of Wight as a result of the change of ownership. Sealink has operated for some years with a fully commercial remit from British Rail.

There is no reason to believe that a new company, operating also with a fully commercial remit, would take a different view from that of the existing management. We do not know at this stage which of the tenders will be accepted, and this may or may not involve the continuance of the existing management

Mr:. Robert Adley: Does my hon. Friend agree that where companies have been privatised — for example, the National Freight Corporation and British Aerospace — the evidence is that the service, employment and industrial relations have improved? This is an important point that needs to be made

Mr:. Mitchell: All that my hon. Friend says is true, but I am sure that the hon. Gentleman is more concerned with the continuity of the service and the assurance that he has sought that there will be no exploitation of his constituents

Mr:. Stephen Ross: Industrial relations within Sealink are very good and its relationship with island business is also very good. However, my constituents and I are concerned about the substantial concessions that are made on fares. A concession of 25 to 35 per cent. on a return ticket from the island to the mainland is substantial when one is talking about a fare of £30. We want the Minister to inquire into that practice before the sale of the company goes ahead

Mr:. Mitchell: I must emphasise that the concessions have been provided by Sealink not merely because it loves the hon. Gentleman or his constituents. The concessions have been provided as a commercial proposition, and there is no reason to believe that a new operator will take a different commecial view from that which has been reflected by the commercial decisions of the existing management. I do not believe that the hon. Gentleman has reason to be concerned on that score.
I hope that I have been able to clarify where matters stand on the privatisation of Sealink. I hope, too, that I have been able to allay the concern that the hon. Gentleman has expressed about the effect of privatisation on ferry services to the Isle of Wight. The Government and British Rail share the hon. Gentleman's wish to end the present uncertainty. We wish to see the successful transfer of the company to the private sector. We believe that this will be to the benefit of Sealink, the railways and their customers, including the hon. Gentleman's constituents on the Isle of Wight.

Question put and agreed to.

Adjourned accordingly at 15 minutes past Twelve o'clock midday on Thursday 12 July 1984.